you are forecasting future free cash flows as part of your effort to value a stock. You believe the Year six free cash flows will be $1 million, that the growth rate after Year 6 will be 3%, and that the required rate of return on equity for this stock is 8%. Compute the value today of this “continuing value”, assuming constant growth. Note that the present value factor for a dollar to be received at the end of year 6 is 0.63 and the present value of a dollar received at the end of year five is 0.68, when the discount rate is 8%.

you are forecasting future free cash flows as part of your effort to value a stock. You believe the Year six free cash flows will be $1 million, that the growth rate after Year 6 will be 3%, and that the required rate of return on equity for this stock is 8%. Compute the value today of this “continuing value”, assuming constant growth. Note that the present value factor for a dollar to be received at the end of year 6 is 0.63 and the present value of a dollar received at the end of year five is 0.68, when the discount rate is 8%.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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