QUESTION 13 Your all-equity firm has beta of 2.0 and a free cash flow today of $10M. The firm is expected to produce a perpetual free cash flow of $12M per year starting next year that grow at rate of 1 percent per year. Assume a risk free rate of 3.0 percent and an expected market risk premium of 6.0 percent. Your firm has 7M shares outstanding. What is the price per share of your firm? 95.71 13.67 12.86 QUESTION 14 Your all-equity firm has beta of 2.0 and a free cash flow today of $10M. The firm is expected to produce a perpetual free cash flow of $12M per year starting next year that grow at rate of 1 percent per year. Assume a risk free rate of 3.0 percent and an expected market risk premium of 6.0 percent. Your firm has 7M shares outstanding. If your firm pays a total dividend of $20M, what is the cum-dividend price per share of your firm? 13.67 10.82 10
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First, we need to calculate the discount rate using the risk-free rate and the market risk premium. The discount rate is the sum of the risk-free rate and the product of the market risk premium and the beta. Discount rate = Risk-free rate + (Market risk premium Show more…
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