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NEW QUESTION: 1
Sentinel News is a publisher of over 100 newspapers around the country, with the exception of the Midwestern states. The company's CFO, Harry Miller, has been reviewing a number of potential candidates (both public and private companies) that would provide Sentinel News entrance into the Midwestern market. Recently, the founder of Midwest News, a private newspaper company, passed away.
The founder's family members are inclined to sell their 80% controlling interest. The family members are concerned that Midwest News's declining newspaper circulation is not cyclical, but rather permanent. The family members would reinvest the cash proceeds from the sale of Midwest News into a diversified portfolio of stocks and bonds. Miller's staff collects the financial information shown in Exhibit 1.

Miller noted that Midwest News does not pay a dividend, nor does the company have any debt. The most comparable publicly traded stock is Freedom Corporation. Freedom, however, has significant radio and television operations. Freedom's estimated beta is 0.90, and 40% of the company's capital structure is debt. Freedom is expected to maintain a payout ratio of 40%. Analysts are forecasting the company will earn S3.00 per share next year and grow their earnings by 6% per year. Freedom has a current market capitalization of S15 billion and 375 million shares outstanding. Freedom's current market value equals its intrinsic value.
Miller's staff uses current expectations to develop the appropriate equity risk premium for Midwest News.
The staff uses the Gordon growth model (GGM) to estimate Midwest's equity risk premium. The equity risk premium calculated by the staff is provided in Exhibit 2.
Miller believes the best method to estimate the required return on equity Midwest News is the build-up method. All relevant information to determine Midwest News's required relurn on equity is presented in Exhibit 2.

The specific-company premium reflects concerns about future industry performance and business risk in Midwest News. Miller makes two statements concerning the valuation methodology used to value Midwest News's equity.
Statement I: The required return estimate that is calculated from Exhibit 2 reflects all adjustments needed to make an accurate valuation of Midwest News.
Statement 2: It is better to use the free cash flow model to value Midwest News than a dividend discount model.
Miller considered two different valuation models to determine the price of Midwest News's equity: a single- stage free cash flow model and a single-stage residual income model.
The required return estimate of Freedom Corporation is closest to:
A. 6%.
B. 9%.
C. 12%.
Answer: B
Explanation:
Explanation/Reference:
Explanation:

Since Freedom Corporation has a dividend policy of paying 40% of earnings, dividend growth equals earnings growth.
The assumption is that Freedoms stock is correctly valued.
(Study Session 10, LOS 35-a)

NEW QUESTION: 2
Your customer is using the MDF position Nomination Method Where in Admin Tools do you grant position
level permissions using role-based permissions?
Please choose the correct answer.
Response:
A. Miscellaneous permissions
B. Manage Succession
C. Employee Views
D. Metadata Framework
Answer: A

NEW QUESTION: 3
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A. 시스템 소프트웨어.
B. 네트워크 하드웨어.
C. 시스템 하드웨어.
D. 응용 프로그램 소프트웨어.
Answer: A

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