Mahomes Co. has a current period cash flow of $1.2 million and pays no dividends. The present
Question:
Mahomes Co. has a current period cash flow of $1.2 million and pays no dividends. The present value of the company’s future cash flows is $15.9 million. The company is entirely financed with equity and has 475,000 shares outstanding. Assume the dividend tax rate is zero.
a. What is the share price of the company’s stock?
b. Suppose the board of directors of the company announces its plan to pay out 50 percent of its current cash flow as cash dividends to its shareholders. How can Jeff Miller, who owns 1,000 shares of the company’s stock, achieve a zero payout policy on his own?
Step by Step Answer:
a First you need to calculate the equity value of the com...View the full answer
Corporate Finance
ISBN: 9781260772388
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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The present value of future cash flows is calculated to determine the value today of a stream of future cash flows. It is calculated by discounting the future cash flows to their present value using a discount rate. The discount rate reflects the time value of money and the risk of the cash flows. It is important because it helps in making investment decisions, capital budgeting, loan decision making, and financial planning. By discounting future cash flows to their present value using a discount rate, it takes into account the time value of money and the risk associated with the cash flows. This allows investors, lenders, and financial planners to evaluate the viability of potential investments, projects, or loan applications, and to estimate the future value of investments or savings. calculating the present value of future cash flows is important in making investment decisions, capital budgeting, loan decision making, and financial planning. It helps to determine the viability of long-term projects, evaluate loan applications, and estimate the future value of investments or savings.
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