Question
Ivy Enterprises invests a lot of money in R&D, and as a result it retains and reinvests all of its earnings instead of paying dividends.
Ivy Enterprises invests a lot of money in R&D, and as a result it retains and reinvests all of its earnings instead of paying dividends. A pension fund manager is interested in purchasing Ivys stock and has estimated its free cash flows for the next 3 years as follows: $5 million, $10 million, and $17 million. After the 3rd year, FCF is projected to grow at a constant 6 percent. Ivys WACC is 11 percent, its debt and preferred stock total $50 million, and it has 3 million shares of common stock outstanding. What is the value of Ivys stock price?
a. $111.82 b. $87.49 c. $96.19 d. $70.82 e. $79.52
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started