Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 of stock be if you are right? Can you please explain it step by step if you were using excel?

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

Fundamentals Of Corporate Finance

Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford

6th Edition

0137852584, 9780137852581

More Books

Students also viewed these Finance questions

Question

Evaluate potential startups and suggest sources of business ideas.

Answered: 1 week ago