Financial Accounting You are working on the valuation for an upcomingIPO. The company that wants to sell its stockexpects the following future free cash flows: -$7million in year 1, $8 million in year 2, and $19million in year 3; cash flows are expected to growsteadily at 5.6% after year 3. The discount rate forthis company is 11.1%, and it plans to sell 9million shares. What should be the price pershare?

Step 1: Define SharesShares are the portion of a company that collectively represents the equity and…

Answered: You are working on the valuation for an…

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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What should be the price per share?
The investment banking firm of Einstein & Co. will use a dividend valuation model to appraise the shares of the Modern Physics Corporation. Dividends (D₁) at the end of the current year will be $1.40. The growth rate (g) is 10 percent and the discount rate () is 14 percent. a. What should be the price of the stock to the public? (Do not round intermediate calculations and round your answer to 2 decimal places.) Price of the stock b. If there is a 5 percent total underwriting spread on the stock, how much will the issuing corporation receive? (Do not round intermediate calculations and round your answer to 2 decimal places.) Net price to the corporation c. If the issuing corporation requires a net price of $33.50 (proceeds to the corporation) and there is a 5 percent underwriting spread, what should be the price of the stock to the public? (Do not round intermediate calculations and round your answer to 2 decimal places.) Necessary public price
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The investment banking firm of Einstein & Co. will use a dividend valuation model to appraise the shares of the Modern Physics Corporation. Dividends (D1) at the end of the current year will be $1.64. The growth rate (g) is 8 percent and the discount rate (Ke) is 13 percent. What should be the price of the stock to the public? If there is a 7 percent total underwriting spread on the stock, how much will the issuing corporation receive? If the issuing corporation requires a net price of $31.30 (proceeds to the corporation) and there is a 7 percent underwriting spread, what should be the price of the stock to the public? (Round to two places to the right of the decimal point.)
You expect Fab Corp to pay a dividend of $2.14/share next year (Year 1); $2.24/share in Year 2; $2.35/share in Year 3; and $2.55/share in Year 4. You also believe the stock will trade in the market at $130/share at the end of Year 4. Draw a timeline for Fab Corp given your expectations assuming all cash flows occur at the end of each year. You have estimated Fab Corp’s Cost of Equity to be 9.1%. Using your timeline, estimate what Fab’s stock should be trading at now.
Suppose an investor is considering the purchase of a share of the UtahMining Company. The stock will pay a $3 dividend a year from today. Thisdividend is expected to grow at 10 percent per year (g 10%) for theforeseeable future. The investor thinks that the required return (r) on thisstock is 15 percent, given her assessment of Utah Mining’s risk. (We alsorefer to r as the discount rate of the stock.) What is the value of a share ofUtah Mining Company’s stock?
You are considering an investment in Eagle Corporation's stock, which is expected to pay a dividend of $2.00 a share at the end of the year (D1 = $2.00) and has a beta of 0.9. The risk-free rate is 3.3%, and the market risk premium is 5%. Eagle currently sells for $31.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? Round your answer to the nearest cent.
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