Question

A firm has 120,000 shares of stock outstanding, a sustainable rate of growth of 3.8%, and $648,200 in next year's free cash flow. What value would you place on a share of this firm's stock if you require a 14% rate of return

Answer 1

Answer: $52.96

Step-by-step explanation:

Based on the information given in the question, the value that should be placed on a share of this firm's stock if a 14% rate of return is required would be:

= [648200/(14%-3.8%)]/120000

= (648200/10.2%)/ 120000

= $52.96