Lisa is choosing between three alternatives: a) working at her job that pays 60 dollars; b) writing a term paper which she value
1 answer:
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Answer:
d. $34.87
Explanation:
We need to calcualte the value of the company. This is done by addingthe present vbalue of the future free cash flow of the firm.
FCF0 = 1.32 (current accounting period)
FCF 1.32 + 30% = 1.716
FCF2 FCF1 + 10% = 1.716 x 1.1 = 1.8876
FCF3 FCF + 5% = 1.8876 x 1.05 = 1.98198
From here after we use the gordon model:
WACC = 9%
grow = 5%
we use FCF instead of dividends: 1.98198
Value of the future cash flow 49,5495
Now, as this are in the future we must adjust using the present value of a lump sum:
PV 1.5743
PV 1.5888
PV 41.7048
Total: 1.5743 + 1.5888 + 41.7048 = 44,8679
Now we adjust for shrot term investment and debt outstanding:
vresent value of the future cash flow 44,8679
short term investment: 4.0000
debt outstanding <u> (14.000) </u>
Net: 34.8679
Answer:
$34.63.
Explanation:
The Gordon Dividend Discount Model will be used to calculate the current share price. This model helps us to determine how much should we pay for a stock and the analysis is based on dividends, growth rate, and our required rate of return. The model is as follows:
where
Po = Current market Price
D1 = Dividend Paid * (1 + g)
D2 = D1 (1 + g) ; D3 = D2 (1 + g) ; D4 = D3 (1 + g) ; D5 = D4 (1 + g)
D6 = D5 (1 + g) ; D7 = D6 (1 + g)
This implies that:
⇒ Current Market Price = $34.63.
Note: Figures are rounded up-to 4 decimal points. A difference of up-to $2 would not affect your scores as far as the methodology is correct.