Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

River Enterprises has 5 0 0 million in debt and 2 0 million shares of equity outstanding. Its excess cash reserves are $ 1 3

River Enterprises has 500 million in debt and 20 million shares of equity outstanding. Its excess cash reserves are $13 million. They are expected to generate $201 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises' weighted average cost of capital is 11%. After analyzing the company, you believe that the growth rate should be 33% instead of 2%. How much higher(in dollars) would the price per share be if you are right?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Modern Portfolio Theory and Investment Analysis

Authors: Edwin Elton, Martin Gruber, Stephen Brown, William Goetzmann

9th edition

9781118805800, 1118469941, 1118805801, 978-1118469941

More Books

Students also viewed these Finance questions