What is the stock price of MC today?

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
icon
Related questions
Question

What is the stock price of MC today?

In 2018, MC Inc. has an EBIT of $125M, and $15M of depreciation. The tax rate is 40%. The net capital spending is $20M. The
net working capital is $20M in 2018, and $40M in 2017. The predicted growth rate is 10% in the next three years. Starting in
the fourth year, the growth rate will be 5% indefinitely. The firm has $40OM (market value) in debt, and 100M shares
outstanding. Beta of MC Inc. is 1.5. Market risk premium is 7%. Risk free rate is 5%. The WACC of the firm is 10%.
Transcribed Image Text:In 2018, MC Inc. has an EBIT of $125M, and $15M of depreciation. The tax rate is 40%. The net capital spending is $20M. The net working capital is $20M in 2018, and $40M in 2017. The predicted growth rate is 10% in the next three years. Starting in the fourth year, the growth rate will be 5% indefinitely. The firm has $40OM (market value) in debt, and 100M shares outstanding. Beta of MC Inc. is 1.5. Market risk premium is 7%. Risk free rate is 5%. The WACC of the firm is 10%.
Expert Solution
Summary Introduction:

In an efficient market, stock prices would be determined primarily by fundamentals, which, at the basic level, refer to a combination of two things: 1) An earnings base (earnings per share (EPS), for example) and 2) a valuation multiple (a P/E ratio, for example).

An owner of a common stock has a claim on earnings, and earnings per share (EPS) is the owner's return on his or her investment. When you buy a stock, you are purchasing a proportional share of an entire future stream of earnings. That's the reason for the valuation multiple: it is the price you are willing to pay for the future stream of earnings.

steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Knowledge Booster
Investment in Stocks
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education