River Enterprises has $506 million in debt and 17 million shares of equity outstanding. Its excess cash reserves are $16 million. They are expected to generate $195 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 13%. After analyzing the company, you believe that the growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share be if you are right? If the growth rate is 2%, the price per share is $ (Round to the nearest cent.)
River Enterprises has $506 million in debt and 17 million shares of equity outstanding. Its excess cash reserves are $16 million. They are expected to generate $195 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 13%. After analyzing the company, you believe that the growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share be if you are right? If the growth rate is 2%, the price per share is $ (Round to the nearest cent.)
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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Transcribed Image Text:River Enterprises has $506 million in debt and 17 million shares of equity outstanding. Its excess cash reserves are $16 million. They are expected to generate $195 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 13%. After analyzing the company, you believe that the growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share be if you are right?
If the growth rate is 2%, the price per share is $
(Round to the nearest cent.)
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