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Red Rabbit Builders's free cash flows (FCFs) are expected to grow at a constant long-term growth rate ( gL ) of 11% per year into
Red Rabbit Builders's free cash flows (FCFs) are expected to grow at a constant long-term growth rate ( gL ) of 11% per year into the future. Next year, the company expects to generate a free cash flow of $3,500,000. The market value of Red Rabbit's outstanding debt and preferred stock is $26,250,000 and $14,583,333, respectively. Red Rabbit has 6,000,000 shares of common stock outstanding, and its weighted average cost of capital (WACC) is 17% Given the preceding information, complete the adjacent table (rounding each value to the nearest whole dollar), and assuming that the firm has not had any nonoperating assets in its balance sheet. Oops, a more careful review of Red Rabbit's balance sheet actually reports a $2,150,000 portfolio of marketable securities. How does this new information affect the intrinsic value of Red Rabbit's common equity (expressed on a per-share basis) assuming no other changes to the Red Rabbit financial situation? Review the statements below and select those that accurately describe Red Rabbit's financial situation. Check all that apply. The revised intrinsic value of Red Rabbit's common stock is $3.27 per share. The intrinsic value of Red Rabbit's common stock increa ses with the inclusion of the company's marketable securities portfolio into the analysis. The intrinsic value of the company's common stock isn't affected by the new information. The intrinsic value of Red Rabbit's common stock decreases with the inclusion of the company's marketable securities portfolio into the analysis
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