Question 7 (2 points) Conundrum Mining is expected to generate $12 million, $18
ID: 2696634 • Letter: Q
Question
Question 7 (2 points)
Conundrum Mining is expected to generate $12 million, $18 million, $22 million and $26 million in free cash flows over the next four years, after which they are expected to grow at a rate of 5% per year. If the weighted average cost of capital is 12% and Conundrum has cash of $80 million, debt of $60 million, and 30 million shares outstanding, what is Conundrum's expected current share price?
Question 7 options:
A)
$10.84
B)
$13.72
C)
$16.16
D)
$16.25
Question 8 (2 points)
General Industries is expected to generate $22 million, $26 million, $29 million, $30 million and $32 million in free cash flows over the next five years, after which free cash flows are expected to grow at a rate of 3% per year. If the weighted average cost of capital is 8% and General Industries has cash of $10 million, debt of $40 million, and 80 million shares outstanding, what is General Industries' expected current share price?
Question 8 options:
A)
$6.60
B)
$6.72
C)
$7.67
D)
$9.48
A)
$10.84
B)
$13.72
C)
$16.16
D)
$16.25
Explanation / Answer
Question 7
A)$10.84
FCF5 = 26 (1.05) = 27.3;
V4 = 27.3 / (0.12 - 0.05) = 390;
using a financial calculator, V0 = 305.09846;
P0 = (305.09846 + 80 - 60) / 30 = $10.84
Question 8
Answer: A) 6.60
Explanation:
FCF6 = 32 1.03 = 32.96;
V5 = 32.96 / (0.08 - 0.03) = 659.2
using financial calculator,
V0 = 558.1523;
P0 = (558.1523 + 10 - 40) / 80 = $6.60
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