Suppose a firm’s operating cash flows is estimated to be $10 million, its fixed capital investment is at $2.5
million, and its investment in net working capital is currently at $1.0 million.
Its long-term debt is $100 million in total and the most recent debt issuance had the YTM of 4.5%. Its stock is currently trading at $50 a share with 2 million shares outstanding. Its beta is estimated to be 1.2; risk-free rate is 2% with the equity market premium of 5%.
Q1) What is the value of the firm if you assume the firm’s free cash flows will grow at 3% indefinitely?
Q2) what is your estimate of a share price?
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