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Assume the estimated free cash flow per share is -$1. Assuming the discount rate is 10% and the growth rate is zero. In this case,

Assume the estimated free cash flow per share is -$1. Assuming the discount rate is 10% and the growth rate is zero. In this case, the fair value of the stock is

a. -$10 (it is worth below zero in the market)

b. even less than -$10.

c. more than $10

d. Zero; worth nothing.

Q9. Assume the stock price in the above problem is computed as $20 with a margin of error at 10%. Also assume the stock is currently trading at $18. Therefore:

a. This is a buy stock (recommend to buy)

b. This is a sell stock (recommend to sell)

c. This is both a buy stock and a sell stock

d. The margin of error is too narrow in this case

e. We take no action (do not buy; do not sell.)

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