Discussion of the free cash flow and a prediction for the future market price of

Question

Discussion of the free cash flow and a prediction for the future market price of Ford’s common stock.

Ford Motor Co. (F) -NYSE Watchlist 13.92 Down 0.12(0.85%) Nov 13, 4:00PM EST After Hours : 13.77 Down 0.15 (1.08%) Nov 13, 7:59PM EST . Prev Close: 14.04 Open: 14.02 Bid: 13.78 x 600 Ask: 13.87 x 500 1y Target Est: 17.65 Beta: 1.1572 Next Earnings Date: N/A Day's Range: 13.89 - 14.07 52wk Range: 10.44 - 16.74 Volume: 25,482,657 Avg Vol (3m): 31,597,400 Market Cap: 55.24B P/E (ttm): 11.65 EPS (ttm): 1.20 Div & Yield: 0.60 (4.33%)

Explanation / Answer

Answer:

The Earning Per share = EPS = $1.2

And price earnings ratio = P/E = 11.65

We know that,

P/E = market price per share/earnings per share

Therefore

11.65 = Market price per share / 1.2

Therefore market price per share = $1.2 x 11.65 = $13.98

Dividend yield is equivalent to the growth rate:

Therefore dividend yield = 4.33% = growth rate of firm

g = 4.33%

Now by using Gordon’s formula:

Current market price = Div x (1+4.33%) / Ke – 4.33%

Here div = 0.6

And current market price = $13.98

Therefore,

$13.98 = 0.6x(1+4.33%)/Ke -4.33%

Therefore Ke = 4.33% + 0.044776824 = 0.088076 = 8.8076%

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.