The Emedical stock has a cash flow per share of $1, which is expected to grow at
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Question:
- The Emedical stock has a cash flow per share of $1, which is expected to grow at 3% forever. The rate of return for this very risky company is 15%.
- a) Should you buy or sell the stock short given a current market price of $10?
- b) Another analyst thinks that the cash flow for Emedical is going to increase by 25% for one year and then at 3% for ever. Please re-calculate and say whether now you should buy or sell given a current market price of $10.
- c) Another analyst suggests that the rate of return is incorrect. He says that given that the β of the company is 1.7, the expected return on the market is 10% and the risk free rate is 5%, we should consider a different rate of return. Is he right (show your calculation-just for the rate of return).
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
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