PHB Company currently sells for $ 32.50 per share. In an attempt to determine whether PHB is

Question:

PHB Company currently sells for $ 32.50 per share. In an attempt to determine whether PHB is fairly priced, an analyst has assembled the following information:

The before - tax required rates of return on PHB debt, preferred stock, and common stock are, respectively, 7.0 percent, 6.8 percent, and 11.0 percent.

The company’s target capital structure is 30 percent debt, 15 percent preferred stock, and 55 percent common stock.
The market value of the company’s debt is $ 145 million, and its preferred stock is valued at $ 65 million.
PHB’s FCFF for the year just ended is $ 28 million. FCFF is expected to grow at a constant rate of 4 percent for the foreseeable future.
The tax rate is 35 percent.
PHB has 8 million outstanding common shares.

What is PHB’s estimated value per share? Is PHB’s stock underpriced?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...

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