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? (HINT: See the final MGM valuation example in this week's lecture to help you for a template and explanation on how to do this) Enter your answer rounded to the nearest cent, with no extra formatting. For example, $637.19 per share should be entered as 637.19
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