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Alborosie
3 years ago
11

You are considering buying common stock in Grow On, Inc. You have calculated that the firm's free cash flow was $8.00 million la

st year. You project that free cash flow will grow at a rate of 7.0% per year indefinitely. The firm currently has outstanding debt and preferred stock with a total market value of $13.88 million. The firm has 1.36 million shares of common stock outstanding. If the firm's cost of capital is 21.0%, what is the most you should pay per share for the stock now?
Business
1 answer:
Aliun [14]3 years ago
4 0

Answer:

The most that should be paid today for 1 share of stock is $34.75

Explanation:

Using the FCFF approach, we can calculate the Value of the firm and can use it to determine the value of the equity.

The value of equity provided by FCFF and FCFE can be used to determine the price per share or fair value per share by dividing the total value of equity by the number of outstanding common shares.

The value of equity = Value of firm - market value of debt

For a firm whose FCFF is growing at a constant rate forever, the formula for the Present value of the firm is,

Value of the Firm (Vf)= FCFF0 * (1+g)  /  (WACC - g)

Where WACC is the cost of capital.

Vf = 8 * (1+0.07)  /  (0.21 - 0.07)

Vf = 61.14285714 million

Value of equity = 61.14285714 - 13.88 = $47.26285714 million

Fair value per share = Value of equity / Number of share outstanding

The fair value per share = 47.26285714 / 1.36   = $34.75 per share

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The answer to the missing word on the statement above is market focus. When a firm competes in a geographically defined specific are, it is using a market focus. For a business to be market-focused, you have to look outside the company for input and data essential to create strategic and tactical judgements. Market focus means you have to have a great deal of understanding your customers. It also means you have to know your competitors very well, and anticipate their next moves.

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5 0
3 years ago
Equestrain Roads accepted a customer's $50,000 zero-interest-bearing six-month note payable in a sales transaction. The product
babunello [35]

Answer:

$4,000

Explanation:

The difference between the face value of note and the issuance value of the note is discount. This discount is recorded and amortized over the note life to maturity. As the note is for 6 months and There are also six months from June 30, to December 31. So, all the Discount of $4,000 ($50,000-$46,000)  will be recognized as Interest Income. This discount can be amortized and recognized as Interest Income on monthly basis or collectively at the year end.

3 0
3 years ago
One of the most important activities of entrepreneurs is identifying their customers. This includes understanding when consumers
Margarita [4]

Answer:

Explanation:

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1. Early adopters. (first adopters)

2. Innovators. (first adopters)

3. Early Majority. (first adopters)

4. Late majority. ( Last adopters)

5. Laggard. ( Last adopters)

2. a. High-income people who have inherited their wealth. ( Laggard)

b. Future oriented Below-average-income wage earners ( Innovators)

c. Present (security) oriented High-income people who have incomes from salary and investment. ( Late majority)

d. Highest professionals, including merchants and financiers. ( Last majority )

e. Present oriented Average-income wage earners. ( Early adopters)

f. Middle managers and owners of medium-sized businesses. ( Early Majority)

g. Above-average-income wage earners. ( early adopters)

h. Present oriented, but worried about the impact of time. (Late majority)

I. Unskilled labor Skilled labor. (Innovators)

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6 0
3 years ago
Demand pull inflation can be started by A. an increase in the price of oil B. a decrease in the quantity of money. C. an increas
devlian [24]

Answer:

Option "C" is correct.

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An increase in government expenditure causes more money inflow on demand over supply.

6 0
3 years ago
The one-year interest rate over the next 10 years will be 3%, 4.5%, 6%, 7.5%, 9%, 10.5%, 13%, 14.5%, 16%, and 17.5%. Using the e
Alja [10]

Answer:

Explanation:

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interest rates on a nine-year bond = (3%+4.5%+ 6%+ 7.5%+ 9%+ 10.5%+ 13%+ 14.5%+16%)/9 =10.23%

So, int rate on a 3 year bond is 4.8%; on a 6 year bond is 7.35%; on a 9 year bond 10.23%

5 0
3 years ago
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