o produce a perpetual free cash flow of $12M per year starting next year that grow at a of 1 percent per year. Assume a risk free rate of 3.0 percent and an expected market risk premium of 6.0 percent. Your firm has 7M shares outstanding. f your firm repurchases $25M worth of shares, how many shares will your firm repurcha
o produce a perpetual free cash flow of $12M per year starting next year that grow at a of 1 percent per year. Assume a risk free rate of 3.0 percent and an expected market risk premium of 6.0 percent. Your firm has 7M shares outstanding. f your firm repurchases $25M worth of shares, how many shares will your firm repurcha
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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Please provide the CORRECT answer to this question. Please read the question CAREFULLY and DOUBLE CHECK your answer BEFORE posting it. I am not sure if 1,828,822 is actually the correct answer as it could also be 2,500,000. Thank you!
Transcribed Image Text:Your all-equity firm has a beta of 2.0 and a free cash flow today of $10M. The firm is expected
to produce a perpetual free cash flow of $12M per year starting next year that grow at a rate
of 1 percent per year. Assume a risk free rate of 3.0 percent and an expected market risk
premium of 6.0 percent. Your firm has 7M shares outstanding.
If your firm repurchases $25M worth of shares, how many shares will your firm repurchase?
2,500,000
2,312,673
1,828,822
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