Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

ACME Transmission Inc. is a tier 1 auto parts supplier. Analysts expected ACME to generate free cash flow of $2 billion in one year. Assume

image text in transcribed

ACME Transmission Inc. is a tier 1 auto parts supplier. Analysts expected ACME to generate free cash flow of $2 billion in one year. Assume that cash flows occur on December 31 and today is January 1 . Analysts expect the cash flows to grow at 2.5% in perpetuity. ACME has $9.5238 billion of debt, which is equal to 1/3 rd of its value and it is committed to maintaining that ratio in perpetuity. The required return of shareholders is 12.5% and the required return of lenders is 5%. The tax rate is 30%. There are 2 billion shares outstanding. What is the fair price for ACME's shares? Round your answer to the nearest cent

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Standards Of Value

Authors: Jay E. Fishman, Shannon P. Pratt, William J. Morrison

2nd Edition

1118138538, 978-1118138533

More Books

Students also viewed these Finance questions