What should be the price per share? 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?

o find the price per share for the company's upcoming IPO, we need to calculate the present value of…

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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Similar questions

An IPO is being offered for P10.00 per share. Much that you want to accept the offer, you want to know if it is fairly priced. Considering that you have a good idea of Free Cash Flow in determining the stock valuation. Based on the latest financial statements of the company, you were able to compute the free cash flow amounted to P300,000 for the current year. You project that for the next two years, this free cash flow will have a growth of 30%, and 20% for the last three years. Then it will maintain its normal growth rate of 10% to infinity. The weighted cost of capital is 15%. The market value of all long term debts totaled P2.0 million and a preferred stock valued at P1.25 million. The company wishes to issue 750,000 shares of common stock. Period PV factor Total Year 1 300,000 x 1.30 390,000 0.8696 339,144 Year 2 390,000 x 1.30 507,000 0.7561 383,342.7 Year 3 507,000 x 1.20 608,400 0.6575 400,023 Year 4 608,400 x 1.20 730,080…
You are considering whether to purchase a company's stock. The stock is expected to pay two dividends, $1.50 at the end of year 1 and $1.75 at the end of year 2. The expected selling price of the stock is $17.50 at the end of year 2. If you require a rate of return of 16% per year for the investment, what is the maximum price that you are willing to pay per share? Select one: a. $14.61 b. $15.49 C. $14.51 d. $15.60 e. $14.17
Show computation
Trail Co. is expected to pay a cash dividend of $2.60 next year. This dividend isexpected to grow at 5% to infinity. If you require a return of at least 9%, what is themost you should be willing to pay for this share? Please use finance calculator and show the workings
You are considering the purchase of Ahlecs Company stock. You anticipate that the company will pay dividend of P2.25 per share next year and P2.50 per share the followiing year. You believe that you can sell the stock for P18.50 per share two years from now. If your required rate of return is 12.5%, what is the maximum price that would pay for a share?
Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2, a dividend in year 2 of $3, and a dividend in year 3 of $4. After year 3, dividends are expected to grow at the rate of 3% per year. An appropriate required return for the stock is 12%. Using the two-stage DDM, the stock should be worth $__________ today. (Round your answer to two decimal places.)
A group of investors is intent on purchasing a publicly traded company and wants to estimate the highest price they can reasonably justify paying. The target company's equity beta is 1.20 and its debt-to-firm value ratio, measured using market values, is 60 percent. The investors plan to improve the target's cash flows and sell it for 12 times free cash flow in year five. Projected free cash flows and selling price are as follows. Year Free cash flows Selling price Total free cash flows ($ millions) 1 $ 31 2 $ 46 3 4 859 $ 51 $ 56 $ 31 $ 46 $51 $ 56 $ 56 $672 $ 728 To finance the purchase, the investors have negotiated a $460 million, five-year loan at 8 percent interest to be repaid in five equal payments at the end of each year, plus interest on the declining balance. This will be the only interest-bearing debt outstanding after the acquisition. Tax rate Selected Additional Information 40 percent Risk-free interest rate Market risk premium a. Estimate the target firm's asset beta 3…
A group of investors is intent on purchasing a publicly traded company and wants to estimate the highest price they can reasonably justify paying. The target company’s equity beta is 1.20 and its debt-to-firm value ratio, measured using market values, is 60 percent. The investors plan to improve the target’s cash flows and sell it for 12 times free cash flow in year five. Projected free cash flows and selling price are as follows. ($ millions) Year 1 2 3 4 5 Free cash flows $38 $53 $58 $63 $ 63 Selling price $ 756 Total free cash flows $38 $53 $58 $63 $ 819 To finance the purchase, the investors have negotiated a $530 million, five-year loan at 8 percent interest to be repaid in five equal payments at the end of each year, plus interest on the declining balance. This will be the only interest-bearing debt outstanding after the acquisition. Selected Additional Information Tax rate 40 percent Risk-free interest rate 3 percent Market risk…
A group of investors is intent on purchasing a publicly traded company and wants to estimate the highest price they can reasonably justify paying. The target company’s equity beta is 1.20 and its debt-to-firm value ratio, measured using market values, is 60 percent. The investors plan to improve the target’s cash flows and sell it for 12 times free cash flow in year five. Projected free cash flows and selling price are as follows. ($ millions) Year 1 2 3 4 5 Free cash flows $38 $53 $58 $63 $ 63 Selling price $ 756 Total free cash flows $38 $53 $58 $63 $ 819 To finance the purchase, the investors have negotiated a $530 million, five-year loan at 8 percent interest to be repaid in five equal payments at the end of each year, plus interest on the declining balance. This will be the only interest-bearing debt outstanding after the acquisition. Selected Additional Information Tax rate 40 percent Risk-free interest rate 3 percent Market risk…
A group of investors is intent on purchasing a publicly traded company and wants to estimate the highest price they can reasonably justify paying. The target company’s equity beta is 1.20 and its debt-to-firm value ratio, measured using market values, is 60 percent. The investors plan to improve the target’s cash flows and sell it for 12 times free cash flow in year five. Projected free cash flows and selling price are as follows. ($ millions) Year 1 2 3 4 5 Free cash flows $33 $48 $53 $58 $ 58 Selling price $ 696 Total free cash flows $33 $48 $53 $58 $ 754 To finance the purchase, the investors have negotiated a $480 million, five-year loan at 8 percent interest to be repaid in five equal payments at the end of each year, plus interest on the declining balance. This will be the only interest-bearing debt outstanding after the acquisition. Selected Additional Information Tax rate 40 percent Risk-free interest rate 3 percent Market risk…
kindly refer to the photos below.
You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $65.74 for one share of the stock today, and you assume the share is riskless but require a return of 8 percent, what dividend payment must you expect to receive from the stock?

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