Question
Green Wave Ltd. has two outstanding bonds. The first has a 2 year maturity and a yield-to-maturity of 4.25%. The second has a 10 year
Green Wave Ltd. has two outstanding bonds. The first has a 2 year maturity and a yield-to-maturity of 4.25%. The second has a 10 year maturity and a yield-to-maturity of 5.30%. Youve computed the firms beta to be 1.30. Free cash flows for the next 6 years are forecast to be -$35 million, -$10 million, $40 million, $60 million, $70 million, and $75 million. Beginning at the end of year 6, free cash flows are expected to grow at a rate of 3.25% forever. The firms target capital structure is a debt-to-value ratio of 0.45, and the firms effective tax rate is 21%. If the firm has 15 million shares of common stock outstanding, what should the firms current share price be? Use a risk-free rate of 2.5% and a market risk premium of 6.0%. Give the answer to 2 decimal places.
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