A company is undergoing a restructuring, and its free cash flows are expected to vary considerably during the next few years. Ho
1 answer:
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Answer:
$5.73(Approx).
Explanation:
Given:
= 0.32
Growth rate = 25% = 0.25
Number of year = 4
Growth rate after 4 year = 3% = 0.03
Required rate of return = 15% = 0.15
Computation of divined in 4 year:
Price of stock after year 4 = [Divined in 4 year × (1 + new growth)] /[Required rate of return - Growth rate after 4 year ]
Price of stock after year 4 = [0.78125 × (1+0.03)] / [0.15 - 0.03]
Price of stock after year 4 = [0.8046875] / [0.12]
Price of stock after year 4 = $6.70572917
Present value = Future value /
Present value = $6.70572917 /
Present value = $6.70572917 /
$5.73(Approx).