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Suppose that the free cash flow per share for the S&P 5 0 0 companies as a whole was $ 1 8 0 last year.
Suppose that the free cash flow per share for the S&P companies as a whole was $ last year. Currently, investors expect the free cash flow to grow by every year in real terms in future years. Assuming that investors demand a real annualized rate of return, what would be the price per share? Use these numbers as the baseline scenario. Now assume that all of a sudden, investors expect a big but temporary recession to hit the US economy such that the free cash flow is expected to be smaller than the baseline projection in smaller in and smaller in and the same as the baseline projection starting in and all future years. What will be the new price per share when investors' expectation suddenly changes?
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