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QUESTION 17 A company just reported the following results for its most recent...

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Finance

QUESTION 17

  1. A company just reported the following results for its most recent fiscal year (year 0): Total revenues: $500 million, Operating profit margin: 40%, Tax rate: 25%, Reinvestment rate: 60%. It has $300 million debt and $2 million cash. Number of shares outstanding is 20 million. You forecast that the company will earn the same FCFF next year (FCFF1), which will then decline at a stable 3% rate (i.e., a negative growth rate) in perpetuity thereafter. You estimate that the company's cost of capital is 14%. How much would you be willing to pay for each share?

    a. $1.8

    b. $2.7

    c. $3.9

    d. $5.1

    e. $6.5

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