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  3. the expected annual cash flow on a restaurant is $

The expected annual cash flow on a restaurant is $300,000 (assume growth = 0%), and my...

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Finance

The expected annual cash flow on a restaurant is $300,000(assume growth = 0%), and my cost of equity capital for restaurantsif 33.3% (restaurants are very risky!). What is the maximum price Iam willing to pay for that business? A stock has a current dividendof $2.00, a forecasted growth rate of 10%, a beta = 2, marketreturn = 12.4% and the risk-free rate (30 year US T-Bond YTM) = 4%.The current stock price on the NYSE is $15. What is the value ofthe stock and is the stock over- or under-valued?

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4.1 Ratings (801 Votes)
Maximum price that we should be willing to pay for the business is as follows Expected Annual cash flows Cost of equity capital Expected annual cash flows 300000 Cost of equity    See Answer
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