Demon Corporation expects to generate free-cash flows of $200,000 per year for each of the next five years. Beyond the five years and into perpetuity, free cash flows are expected to grow at a constant rate of 5 percent per year forever. The firm's weighted average cost of capital is 15 percent. The firm’s market value of debt is $500,000 and there is no preferred stock. What is the market value of Demon Cop. equity?
Demon Corporation expects to generate free-cash flows of $200,000 per year for each of the next five years. Beyond the five years and into perpetuity, free cash flows are expected to grow at a constant rate of 5 percent per year forever. The firm's weighted average cost of capital is 15 percent. The firm’s market value of debt is $500,000 and there is no preferred stock. What is the market value of Demon Cop. equity?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Demon Corporation expects to generate
Transcribed Image Text:Demon Corporation expects to generate free-cash flows of $200,000 per year for
each of the next five years. Beyond the five years and into perpetuity, free cash
flows are expected to grow at a constant rate of 5 percent per year forever. The
firm's weighted average cost of capital is 15 percent. The firm's market value of debt
is $500,000 and there is no preferred stock. What is the market value of Demon
Cop. equity?
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