Question 7 (2 points) Conundrum Mining is expected to generate $12 million, $18

Question

Question 7 (2 points)

Conundrum Mining is expected to generate $12 million, $18 million, $22 million and $26 million in free cash flows over the next four years, after which they are expected to grow at a rate of 5% per year. If the weighted average cost of capital is 12% and Conundrum has cash of $80 million, debt of $60 million, and 30 million shares outstanding, what is Conundrum's expected current share price?

Question 7 options:

A)

$10.84

B)

$13.72

C)

$16.16

D)

$16.25

Question 8 (2 points)

General Industries is expected to generate $22 million, $26 million, $29 million, $30 million and $32 million in free cash flows over the next five years, after which free cash flows are expected to grow at a rate of 3% per year. If the weighted average cost of capital is 8% and General Industries has cash of $10 million, debt of $40 million, and 80 million shares outstanding, what is General Industries' expected current share price?

Question 8 options:

A)

$6.60

B)

$6.72

C)

$7.67

D)

$9.48

A)

$10.84

B)

$13.72

C)

$16.16

D)

$16.25

Explanation / Answer

Question 7

A)$10.84

FCF5 = 26 (1.05) = 27.3;

V4 = 27.3 / (0.12 - 0.05) = 390;

using a financial calculator, V0 = 305.09846;

P0 = (305.09846 + 80 - 60) / 30 = $10.84

Question 8

Answer: A) 6.60

Explanation:

FCF6 = 32 1.03 = 32.96;

V5 = 32.96 / (0.08 - 0.03) = 659.2

using financial calculator,

V0 = 558.1523;

P0 = (558.1523 + 10 - 40) / 80 = $6.60

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.