Question

A firm has 120,000 shares of stock outstanding, a sustainable rate of growth of 3.8, and $648,200 in free cash flows. What value would you place on a share of this firm's stock if you require a 10% rate of return?

Answer 1

stock price =$87.12

Step-by-step explanation:

stock price is given as
`stock price = ((free\ cash\ flow)/(required\ rate - growth\ rate))/(number\ of\ outstanding\ shares )`

where,

free casg flow = $6,48,200

required growth = 10%

growth rate = 3.8% = .038

number of outstanding shares = 120,000

putting all value to get stock price
`stock price = ((648,200)/(0.10 -.038))/(120,000)`

stock price =$87.12