Covan, Inc., is expected to have the following free cash flows: a. Covan has 8 million shares

Question:

Covan, Inc., is expected to have the following free cash flows:

a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 12%, what should its stock price be?
b. Covan reinvests all its FCF and has no plans to add debt or change its cash holdings. If you plan to sell Covan at the beginning of year 2, what should you expect its price to be?
c. Assume you bought Covan stock at the beginning of year 1. What is your return expected to be from holding Covan stock until year2?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...