Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts

Question:

Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made in 2019 are as follows:

Phoenix?s recovery will be complete by 2024, and there will be no further growth in net income or 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. Confirm that the expected rate of return on Phoenix stock is exactly 9% in each of the years from 2020 to 2024.

Cost Of Equity
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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