Question

Portage Bay Enterprises has $ 1 million in excess​ cash, no​ debt, and is expected to...

Portage Bay Enterprises has

$ 1

million in excess​ cash, no​ debt, and is expected to have free cash flow of

$ 11

million next year. Its FCF is then expected to grow at a rate of

3 %

per year forever. If Portage​ Bay's equity cost of capital is  

13 %

and it has

66

million shares​ outstanding, what should be the price of Portage Bay​ stock?

The price of Portage​ Bay's stock is

per share.  ​(Round to the nearest​ cent.)

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Answer #1

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Answer:

= $11M/(13%-3%)

= 110,000,000

= (110000000-1000000)/66M

= 1.65

In order to find the stock price we need to calculate the firm value Firm Value = FCF WACC - Growth Rate

Therefore the stock price is, Fim Value +Excess Cash Value Stock Price = Shares Outstanding

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