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Please help me answer these two problems: Portage Bay Enterprises has $4 million in excess cash, no debt, and is expected to have free cash
Please help me answer these two problems:
Portage Bay Enterprises has $4 million in excess cash, no debt, and is expected to have free cash flow of $9 million next year. Its FCF is then expected to grow at a rate of 6% per year forever. If Portage Bay's equity cost of capital is 9% and it has 5 million shares outstanding, what should be the price of Portage Bay stock? The price of Portage Bay's stock is $ per share. (Round to the nearest cent.) River Enterprises has $500 million in debt and 20 million shares of equity outstanding. Its excess cash reserves are $15 million. They are expected to generate $200 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises' cost of equity capital is 12%. After analyzing the company, you believe that the growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share be if you are right? If the growth rate is 2%, the price per share is $. (Round to the nearest cent.) If the growth rate is 3%, the price per share is $. (Round to the nearest cent.) If you are right and the growth rate is 3%, the price per share would be 9 higher. (Round to the nearest cent.)Step by Step Solution
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