Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The current free cash flow to equity ( FCFE ) of a firm is $ 8 9 9 . If the risk - free rate

The current free cash flow to equity (FCFE) of a firm is $899. If the risk-free rate is 3%, the beta of the stock is 1.75 and the equity market risk premium is 2%, what is the current market value of equity of this stock if the FCFE is expected to grow at 4% in perpetuity?
Stage 1: The present value of the FCFF for stage 1 is $5,946
Stage 2: The present value of the terminal value of the firm is $5,296
The market value of debt is $344
Cash is $3,289
Number of shares outstanding 85
Weighted Average Cost of Capital (WACC)=10%

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_2

Step: 3

blur-text-image_3

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

Entrepreneurial Finance Strategy, Valuation, And Deal Structure

Authors: Janet Smith, Richard Smith, Richard Bliss

1st Edition

0804770913, 9780804770910

More Books

Students also viewed these Finance questions

Question

What impediments originate in society at large?

Answered: 1 week ago

Question

How have their tactics changed?

Answered: 1 week ago

Question

What impediments have financial or economic origins?

Answered: 1 week ago