Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR THE NEXT

question 106

Multiple Choice

Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF $$\begin{array} { c c } \text { Year } & \text { Grawth Rate } \\\hline 2010 & 25 \% \\2011 & 20 \% \\2012 & 15 \% \\2013 & 10 \% \\2014 & 12 \% \\2015 & 14 \% \\2016 & 16 \% \\2017 & 198\end{array}$$
From year 2018 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 9-8. Calculate the required rate of return on equity.

• A) 8.2%
• B) 9.4%
• C) 9.0%
• D) 10.3%
• E) 7.3%

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Definitions:

Scaffolding

An educational method that involves providing support structures to facilitate learning, gradually removed as learners gain independence.

Zone of Proximal Development

This refers to the developmental zone that lies between what a learner can do without help and what they can do with help from a more knowledgeable person.

Psychosocial Development

Erik Erikson's theory that describes how individuals evolve through various stages of social and psychological growth throughout their life.

Head Start

A program in the United States that provides comprehensive early childhood education, health, nutrition, and parent involvement services to low-income children and families.