Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts
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Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made in 2016 are as follows.
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Phoenix's recovery will be complete by 2021, and there will be no further growth in free cash flow.
a. Calculate the PV of free cash flow, assuming a cost of equity of 9%.
b. Assume that Phoenix has 12 million shares outstanding. What is the price per share?
c. If the 2016 net income is $1 million, what is Phoenix's P/E ratio? How do you expect that P/E ratio to change from 2017 to 2021?
d. Confirm that the expected rate of return on Phoenix stock is exactly 9% in each of the years from 2017 to 2021.
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...
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Related Book For 
Principles of Corporate Finance
ISBN: 978-1259144387
12th edition
Authors: Richard Brealey, Stewart Myers, Franklin Allen
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