Question

Covan, Inc. is expected to have the following free cash​flow:

Year 1 2 3 4
FCF 13 15 16 17 Grow by 4% per year
a. Covan has 66 million shares​ outstanding, 33 million in excess​ cash, and it has no debt. If its cost of capital is 13%​, what should be its stock​ price?
b. Covan reinvests all its FCF and has no plans to add debt or change its cash holdings​ (it does not invest its cash​ holdings). If you plan to sell Covan at the beginning of year​ 2, what is its expected​ price?
c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year​2?

Answer 1

a

Step-by-step explanation:

you add