Question
Assume that today is December 31, 2015, and that the following information applies to Vermeil Airlines: - After-tax operating income [EBIT (1-T)] for 2016 is
Assume that today is December 31, 2015, and that the following information applies to Vermeil Airlines: - After-tax operating income [EBIT (1-T)] for 2016 is expected to be $500 million. - The depreciation expense for 2016 is expected to be $100 million. - The capital expenditures for 2016 are expected to be $200 million. - No change is expected in networking capital. - The free cash flow is expected to grow at a constant rate of 6% per year. - The required return on equity is 14%. - The WACC is 10%. - The market value of the companys debt is $5 billion. - 200 million shares of stock are outstanding. Using the corporate valuation model approach, what should be the companys stock price today?
A) $25
B) $20
C) $18
D) $23
E) $28
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