Suppose a firm has a EBIT of $450, Depreciation of $65, taxes of $50, change in NWC of $35, and net capital expenditures of $75. Its FCF are expected to grow constantly indefinitely. The firm has a retention rate of 60%, an ROE of 6.667%, and a WACC of 15%. What is the value of the firm? Assuming the firm's market value of debt is $1,350 and the firm has 98 shares outstanding, what is should the firm's stock price be? Should you buy the stock if it currently sells for $15 per stock?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Suppose a firm has a EBIT of $450,
What is the value of the firm?
Assuming the firm's market value of debt is $1,350 and the firm has 98 shares outstanding, what is should the firm's stock price be? Should you buy the stock if it currently sells for $15 per stock?
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