INVESTMENT ANALYSIS AND PORTFOLIO
MANAGEMENT 11TH EDITION FRANK
REILLY KEITH BROWN SOLUTION
MANUAL WITH TEST BANK PRACTICE
SCRIPT UPDATED 2026 TESTED SOLUTIONS
⫸ You are considering acquiring a common stock that you would like to
hold for one year. You expect to receive both $1.25 in dividends and $32
from the sale of the stock at the end of the year. The maximum price you
would pay for the stock today is _____ if you wanted to earn a 10%
return.
A. $30.23
B. $24.11
C. $26.52
D. $27.50
E. None of the options are correct. Answer: .10 = (32P + 1.25)/P
.10P = 32 - P + 1.25
1.10P = 33.25
P = 30.23
A. $30.23
⫸ Consider the free cash flow approach to stock valuation. Utica
Manufacturing Company is expected to have before-tax cash flow from
,operations of $500,000 in the coming year. The firm's corporate tax rate
is 30%. It is expected that $200,000 of operating cash flow will be
invested in new fixed assets. Depreciation for the year will be $100,000.
After the coming year, cash flows are expected to grow at 6% per year.
The appropriate market capitalization rate for unleveraged cash flow is
15% per year. The firm has no outstanding debt. The total value of the
equity of Utica Manufacturing Company should be
A. $1,000,000.
B. $2,000,000.
C. $3,000,000.
D. $4,000,000. Answer: Before Tax OpCF 500,000
-Depreciation 100,000
Taxable Income 400,000
-Taxes (30%) 120,000
After Tax Income 280,000
After Tax Inc. + Dep 380,000
-New Investment 200,000
FCF 180,000
V0 = 180,000/(.15-.06) = 2,000,000
B. 2,000,000
, ⫸ Boaters World is expected to have per share FCFE in year 1 of $1.65,
per share FCFE in year 2 of $1.97, and per share FCFE in year 3 of
$2.54. After year 3, per share FCFE is expected to grow at the rate of
8% per year. An appropriate required return for the stock is 11%. The
stock should be worth _______ today.
A. $77.53
B. $40.67
C. $82.16
D. $71.80
E. None of the options are correct. Answer: 1. FCFE $1.65
PV = 1.65/1.11 = 1.4865
2. FCFE $1.97
PV = 1.97/(1.11)^2 = 1.5989
3. FCFE $2.54
PV = 2.54/(1.11)^3 = 1.8572
Sum of PV = 4.94
P3 = $2.54 (1.08)/(.11-.08) = $91.44
PV = $91.44/(1.11)^3 = $66.86
P0 = 4.94 + 66.86 = $71.80
D. $71.80
⫸ Which of the following is the best measure of the floor for a stock
price?
MANAGEMENT 11TH EDITION FRANK
REILLY KEITH BROWN SOLUTION
MANUAL WITH TEST BANK PRACTICE
SCRIPT UPDATED 2026 TESTED SOLUTIONS
⫸ You are considering acquiring a common stock that you would like to
hold for one year. You expect to receive both $1.25 in dividends and $32
from the sale of the stock at the end of the year. The maximum price you
would pay for the stock today is _____ if you wanted to earn a 10%
return.
A. $30.23
B. $24.11
C. $26.52
D. $27.50
E. None of the options are correct. Answer: .10 = (32P + 1.25)/P
.10P = 32 - P + 1.25
1.10P = 33.25
P = 30.23
A. $30.23
⫸ Consider the free cash flow approach to stock valuation. Utica
Manufacturing Company is expected to have before-tax cash flow from
,operations of $500,000 in the coming year. The firm's corporate tax rate
is 30%. It is expected that $200,000 of operating cash flow will be
invested in new fixed assets. Depreciation for the year will be $100,000.
After the coming year, cash flows are expected to grow at 6% per year.
The appropriate market capitalization rate for unleveraged cash flow is
15% per year. The firm has no outstanding debt. The total value of the
equity of Utica Manufacturing Company should be
A. $1,000,000.
B. $2,000,000.
C. $3,000,000.
D. $4,000,000. Answer: Before Tax OpCF 500,000
-Depreciation 100,000
Taxable Income 400,000
-Taxes (30%) 120,000
After Tax Income 280,000
After Tax Inc. + Dep 380,000
-New Investment 200,000
FCF 180,000
V0 = 180,000/(.15-.06) = 2,000,000
B. 2,000,000
, ⫸ Boaters World is expected to have per share FCFE in year 1 of $1.65,
per share FCFE in year 2 of $1.97, and per share FCFE in year 3 of
$2.54. After year 3, per share FCFE is expected to grow at the rate of
8% per year. An appropriate required return for the stock is 11%. The
stock should be worth _______ today.
A. $77.53
B. $40.67
C. $82.16
D. $71.80
E. None of the options are correct. Answer: 1. FCFE $1.65
PV = 1.65/1.11 = 1.4865
2. FCFE $1.97
PV = 1.97/(1.11)^2 = 1.5989
3. FCFE $2.54
PV = 2.54/(1.11)^3 = 1.8572
Sum of PV = 4.94
P3 = $2.54 (1.08)/(.11-.08) = $91.44
PV = $91.44/(1.11)^3 = $66.86
P0 = 4.94 + 66.86 = $71.80
D. $71.80
⫸ Which of the following is the best measure of the floor for a stock
price?
