Question

CORPORATE VALUATION

Scampini Technologies is expected to generate $150 million in free cash flow next year, and FCF is expected to grow at a constant rate of 7% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 13%. If Scampini has 65 million shares of stock outstanding, what is the stock's value per share? Round your answer to two decimal places.

Each share of common stock is worth $ ____, according to the corporate valuation model.

Farley Inc. has perpetual preferred stock outstanding that sells for $42.00 a share and pays a dividend of $4.00 at the end of each year. What is the required rate of return? Round your answer to two decimal places.

%

PREFERRED STOCK RATE OF RETURN

What will be the nominal rate of return on a perpetual preferred stock with a $100 par value, a stated dividend of 11% of par, and a current market price of (a) $61.00, (b) $90.00, (c) $110.00, and (d) $138.00? Round your answers to two decimal places.

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Answer 1

1). Value of Equity = FCF1 / (WACC - g) = $150 million / (0.13 - 0.07) = $2,500 million

Share Price = Value of Equity / No. of O/S Shares = $2,500 million / 65 million = $38.46

2). kP = Annual Dividend / Current Price = $4 / $42 = 0.0952, or 9.52%

3a). r = Annual Dividend / Current Price = $11 / $61 = 0.1803, or 18.03%

b). r = Annual Dividend / Current Price = $11 / $90 = 0.1222, or 12.22%

c). r = Annual Dividend / Current Price = $11 / $110 = 0.10, or 10.00%

d). r = Annual Dividend / Current Price = $11 / $138 = 0.0797, or 7.97%