Question
You would like to evaluate TSLA's stock. You find out the following about TSLA needed to do so: (1) Their CAPM beta is 1.6. (2)
You would like to evaluate TSLA's stock. You find out the following about TSLA needed to do so:
(1) Their CAPM beta is 1.6.
(2) The weighted-average YTM on TSLA's bonds is 4%.
(3) Tesla's effective tax-rate is 25%.
(4) TSLA's capital structure mix is 96% equity and only 4% debt. TSLA has 932 million shares outstanding.
(5) The risk-free rate is currently .5% and the market risk-premium is 6%.
(6) Below are TSLA's expected OCFs (operating cash flows) for the next 5 years:
Year 1: $2,400,000,000
Year 2: $3,000,000,000
Year 3: $3,700,000,000
Year 4: $4,600,000,000
Year 5: $5,900,000,000
After year 5, TSLA is expected to grow its OCFs at a very impressive 6% per annum, indefinitely. Tesla is currently trading at $425 a share.
What is TSLA's fair stock price per share, given the above assumptions?
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