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

question 17

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 intrinsic value of the stock now (Year 2009) .

• A) $155.55
• B) $173.27
• C) $196.44
• D) $207.79
• E) $108.30

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Definitions:

Depreciation Method

An accounting technique used to allocate the cost of a tangible asset over its useful life, reflecting its consumption, wear and tear, or obsolescence.

Adjusting Journal Entries

Entries made in the accounting records at the end of an accounting period to allocate income and expenditures to the period in which they actually occurred.

Accumulated Depreciation

The aggregate depreciation cost that has been accounted for a particular asset since its first operational use.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life for accounting purposes, reflecting wear and tear.