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Problem 4 (10 marks) Jasper Energy is a growing company with $2 million of debt at a before-tax cost of 8%, and it pays 40%
Problem 4 (10 marks)
Jasper Energy is a growing company with $2 million of debt at a before-tax cost of 8%, and it pays 40% corporate taxes. The firms debt-equity ratio is 1.5 and there are 1 million shares outstanding with a cost of capital of 14%. If the firm expects to have $1 million of free cash flow, and a growth rate of 5%, what is a fair value for the firms shares?
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