17feb3 - O D wils liels | -4 27 27 Wies wx. 14. Times New... .UIB . *.* . ps will w e = = = A A . * ) % . bwes - 25 A Covan reinvests all its FO 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? e E F G H I J C28 x V x K L M N Problem 10-7 Covan, Inc., is expected to have the free cash flows in the table below. Complete the steps below using cell references to given dala or previous calculations. In some cases, a simple cell reference is all you need. To copy/paste a formula across a row or down a column, an absolute cell reference or a mixed cell reference may be preferred. If a specific Excel function is to be used, the directions will specify the use of that function. Do not type in numerical data into a cell or function. Instead, make a reference to the cell in which the data is found. Make your computations only in the blue cells highlighted below. In all cases, unless otherwise directed, use the earliest appearance of the data in your formulas, usually the Given Data section. 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 expected return from holding Covan stock until year 2? Year Free Cash Flow (million) 10 $ 12 S 13 S 14 4% Growth Growth rate Number of periods until steady growth 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? 17 10-7 - Number of shares (million) 193,9 + - C 125% + "B" si Enter bal 17feb3 - O D wils liels | 49" . Times New.. 5 . *.*. ps will wall M = = = = A A . 14 i bweb ca 3 = Covan reinvests all its FO 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? I J C28 x fx K L MN Number of shares (million) Excess cash (million) Debt (million) Cost of capital Soon 12% Cash flow in ycar 5 (million) Value in year 4 (million) Enterprise valuc (million) V. Value of equity (million) Price per share S S S 14,56 182,00 135,75 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? After-sale number of periods left until staedy growth Enterprise valuc (million) V. Value of equity (million) Price per share c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 22 Holding period return + 10-7 - 120,9 - 125% + C # "B" 11 i Enter bag