MIT Sloan School of Management

S.C. Myers & J. Wang 15.401 A-D

Finance Theory I Fall 1999

Problem Set 3: Valuation of Common Stocks

(Due date: Friday, October 15, 1999)

1. BM Practice Question 4.6

2. BM Practice Question 4.4

3. BM Practice Question 4.8

4. BM Practice Question 4.10

5. BM Practice Question 4.18

6. BM Minicase of Chapter 4 (page 90-91).

In the valuing Reeby Sports, you could first assume that the $4.4 million financing will
be contributed by its current shareholders. In this case, you can look at the free cash
flows of the company (read BM Section 4.5 for more discussions on free cash flows).
As an optional question, you could also consider the case (as described in the last
paragraph of the case) in which Reeby Sports raises the $4.4 million by issuing shares
to new shareholders.