ear 1 2 3 4 5 FCF -$22.27 $37.7 $43.3 $52.9 $55.5 The weighted average cost of capital is 12%, and the FCFS are expected to continue growing at a 3% rate after Year 5. The firm has $26 million of market-value debt, but it has no preferre tock or any other outstanding claims. There are 18 million shares outstanding. Also, the firm has zero non-operating assets. What is the value of the stock price today (Year 0)? Round you inswer to the nearest cent. Do not round intermediate calculations. = per share According to the valuation models developed in this chapter, the value that an investor assigns to a share of stock is dependent on the length of time the investor plans to hold the stock. the statement above is -Select- ✓
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
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