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Lemur [1.5K]
3 years ago
8

A company’s weighted average cost of capital is 10.8% per year and the market intrinsic value of its debt is $33.1 million. The

company’s free cash flow next year is expected to be $4.7 million and the free cash flow is expected to grow forever at a rate of 3.7% per year. If the company has three million shares of common stock outstanding, what is the intrinsic value per share? Question 6 options: A) $13.72 B) $9.48 C) $11.03 D) $12.24 E) $15.12
Business
1 answer:
VashaNatasha [74]3 years ago
4 0

Answer:

C. $11.03

Explanation:

We need to first compute the firm's value which is shown below.

Firm's value = Free cash flow ÷ (Weighted average cost of capital - Growth rate)

Firm's value = $4.7 million ÷ ( 10.8% - 3.7%)

= $4.7 million ÷ 7.1%

= $66,197,183

Stock price = (Firm value - Debt) ÷ Number of shares

= ($66,197,183 - $33,100,000) ÷ 3,000,000

= $33,097,183 ÷ 3,000,000

= $11.03

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$89,100

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Miltmar Corporation will pay a year-end dividend of $3, and dividends thereafter are expected to grow at a constant rate of 5% p
motikmotik

Part a: The market capitalization rate is 9.25%

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Market capitalization rate is another name for the stock's required rate of return. It is called the market capitalization rate because we can infer it by observing the market value of the stock. One way to find this rate is the capital asset pricing model (CAPM).

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