River Enterprises has 500 million in debt and 20 million shares of equity outstanding. Its excess cash reserves are $13 million. They are expected to generate $201 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises' weighted average cost of capital is 11%. After analyzing the company, you believe that the growth rate should be 33% instead of 2%. How much higher (in dollars) would the price per share be if you are right?
River Enterprises has 500 million in debt and 20 million shares of equity outstanding. Its excess cash reserves are $13 million. They are expected to generate $201 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises' weighted average cost of capital is 11%. After analyzing the company, you believe that the growth rate should be 33% instead of 2%. How much higher (in dollars) would the price per share be if you are right?
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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