Question

You are considering buying common stock in Grow On, Inc. You have calculated that the firm's...

You are considering buying common stock in Grow On, Inc. You have calculated that the firm's free cash flow was $7.00 million last year. You project that free cash flow will grow at a rate of 10.0% per year indefinitely. The firm currently has outstanding debt and preferred stock with a total market value of $107.03 million. The firm has 1.56 million shares of common stock outstanding. If the firm's cost of capital is 12.0%, what is the most you should pay per share for the stock now?

Question 20 options:

$277.97

$246.79

$385.00

$178.19

$420.63
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Enterprise Value (EV)= FCF1/r-g

Where FCF1= Free Cash flow for year 1, r= cost of capital and g= growth rate of cash flow

Given, FCF last year (FCF0) was $7 Million.

Therefore, EV= FCF0*(1+10%)/(12%-10%) = 7,7/0.02= $385 Million.

Given, Debt and Preferred Stock= $107.03 Million and number of shares= 1.56 Million

Equity= EV-Debt= $385 Million- $107.03 Million= $277.97 Million

Therefore, price per share= Equity Value/ Number of shares= $277.97 Million/1.56 Million = $178.19

The answer is 4th option given

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You must estimate the intrinsic value of Noe Technologies’ stock. The end-of-year free cash flow (FCF...
You must estimate the intrinsic value of Noe Technologies’ stock. The end-of-year free cash flow (FCF 1) is expected to be $28.50 million, and it is expected to grow at a constant rate of 7.0% a year thereafter. The company’s WACC is 10.0%, it has $125.0 million of long-term debt plus preferred stock outstanding, and there are 15.0 million shares of common stock outstanding. Assume the firm has zero non-operating assets. What is the firm's estimated intrinsic value per share...
You must estimate the intrinsic value of Mobile Technologies' stock. The end-of-year free cash flow is...
You must estimate the intrinsic value of Mobile Technologies' stock. The end-of-year free cash flow is expected to be $5 million for the first two years and $27 million for year 3, and it is expected to grow at a constant rate of 7.0% a year thereafter. The company's WACC is 10.0%, it has $125.0 million of long-term debt plus preferred stock outstanding, and there are 15.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value...
Title: Constant Growth Model (new div - CAPM) You are considering buying common stock in Grow...
Title: Constant Growth Model (new div - CAPM) You are considering buying common stock in Grow On, Inc. You have projected that the next dividend the company will pay will equal $7.60 and that dividends will grow at a rate of 6.0% per year thereafter. The firm's beta is 0.93, the risk-free rate is 6.1%, and the market return is 13.6%. What is the most you should pay for the stock now? Note: Please solved using TI-84 calculator.
3. You have been assigned the task of using the corporate, or free cash flow, model...
3. You have been assigned the task of using the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's WACC is 10.00%, its end-of-year free cash flow (FCF1) is expected to be $70.0 million, the FCFs are expected to grow at a constant rate of 5.00% a year in the future, the company has $200 million of long-term debt and preferred stock, and it has 30 million shares of common stock outstanding. Assume the firm...
You have been assigned the task of using the corporate, or free cash flow, model to...
You have been assigned the task of using the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's WACC is 10.00%, its end-of-year free cash flow (FCF1) is expected to be $70.0 million, the FCFs are expected to grow at a constant rate of 5.00% a year in the future, the company has $200 million of long-term debt and preferred stock, and it has 30 million shares of common stock outstanding. What is the firm's...
You must estimate the intrinsic value of IST Technologies’ stock. The end-of-year free cash flow (FCF1)...
You must estimate the intrinsic value of IST Technologies’ stock. The end-of-year free cash flow (FCF1) is expected to be $55.00 million, and it is expected to grow at a constant rate of 5.0% a year thereafter. The company’s WACC is 9.0%, it has $105.0 million of long-term debt plus preferred stock outstanding, and there are 20.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?
Beishan Technologies' end-of-year free cash flow (FCF1) is expected to be $70 million, and free cash...
Beishan Technologies' end-of-year free cash flow (FCF1) is expected to be $70 million, and free cash flow is expected to grow at a constant growth rate of 5% a year in the future. The firm's WACC is 10%, and it has $600 million of long-term debt and preferred stock. If the firm has 34 million shares of common stock outstanding, what is the estimated intrinsic value per share of their common stock? Your answer should be between 14.20 and 68.54
Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $38.00 per...
Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $38.00 per share. The firm's dividend for next year is expected to be $4.10 with an annual growth rate of 7.0% thereafter indefinitely. If the firm issues new stock, the flotation costs would equal 15.0% of the stock's market value. The firm's marginal tax rate is 40%. What is the firm's cost of external equity? 18.57% 17.79% 18.54% 20.58% 19.69% Marginal Incorporated (MI) has determined that...
Noe Technologies’ stock current free cash flows is expected to be $25.00 million, and it is...
Noe Technologies’ stock current free cash flows is expected to be $25.00 million, and it is expected to grow at a constant rate of 5.0% a year thereafter. The company’s WACC is 10.0%, it has $125.0 million of long-term debt and $25.0 million of marketable securities, and there are 10.0 million shares of common stock outstanding. What is the firm's intrinsic value per share of common stock?
) Hankins Corporation has 8 million shares of common stock outstanding, 920,000 shares of preferred stock...
) Hankins Corporation has 8 million shares of common stock outstanding, 920,000 shares of preferred stock outstanding, and 180,000 of 5.5 percent semiannual bonds outstanding, par value $1,000 each. The annual dividend for the preferred stocks is $4.8 per share. The common stock currently sells for $39 per share and has a beta of 1.26, the preferred stock currently sells for $80 per share, and the bonds have 25 years to maturity and sell for 98 percent of par. The...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT