Question
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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