According to the value-based management model, what is the stock price per share
ID: 2729280 • Letter: A
Question
According to the value-based management model, what is the stock price per share given the following data?
Year
1
Revenue
700.00
Other income
25.00
Fixed costs
90.00
Variable costs
280.00
Additional investment in NWC
3.00
Additional investment in operating long-term assets
80.00
Depreciation
75.00
Tax rate
0.40
The free cash flow is expected to grow at 8% from year 1 to year 5 and 6% after year 5 to infinity. WACCcomp = 20%.
Market value of the firm:
Price per share
Number of shares
Market value
Long-term debt
700.00
Preferred stock
7.00
10
70.00
Common stock, equity
15.00
100
1,500.00
Total
2,270.00
Market value of non-operating short-term assets=50
Market value of non-operating long-term assets=80
Select one:
a. $9.97
b. $7.22
c. $8.54
d. $6.90
e. $5.68
Year
1
Revenue
700.00
Other income
25.00
Fixed costs
90.00
Variable costs
280.00
Additional investment in NWC
3.00
Additional investment in operating long-term assets
80.00
Depreciation
75.00
Tax rate
0.40
Explanation / Answer
so anser is (d) 6.90
free cash Flow to Equity t=0 t=1 to end EBIT= 700+25-90-280-75 532 Less : Tax@ 40% 212.8 EAT 319.2 Add : Dep & Non Cash Exp 75 Less : Change in working Capital -3 Less. Capex -80 -80 1136Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.