Assume the company has capital components: Debt of $20,000,000. Assume if the company were to issue debt or take out a
Posted: Tue Apr 26, 2022 11:49 am
Assume the company has capital components:
Debt of $20,000,000. Assume if the company were to issue
debt or take out a loan the interest cost would be 6.5%.
80,000 preferred share outstanding trading at $25/per share and
a $1.80 annual dividend.
The book value of Common equity is $50,000,000. Their common
shares trade at $60/per share in the market and there are 1,500,000
shares outstanding. Assume the company has a beta of
1.1. The risk-free rate is 3% (on 10-year US Treasuries) and
the market risk premium is 4.50%.
D->Based on your analysis, do you believe the common shares
are over or under valued?
E->Create a two variable data table in excel by varying the
growth rate in free cash flow from 2% to 6% in .50% increments and
risk free rate from 1% to 5% in .50% increments to show the impact
on your expected stock price above.
F>Create scenario analysis in excel by assuming in a best
case scenario, FCF growth will be 5% and the market risk premium
will only be 3%. In a worst case scenario assume FCF growth will be
1% and the market risk premium will only be 6%.
Debt of $20,000,000. Assume if the company were to issue
debt or take out a loan the interest cost would be 6.5%.
80,000 preferred share outstanding trading at $25/per share and
a $1.80 annual dividend.
The book value of Common equity is $50,000,000. Their common
shares trade at $60/per share in the market and there are 1,500,000
shares outstanding. Assume the company has a beta of
1.1. The risk-free rate is 3% (on 10-year US Treasuries) and
the market risk premium is 4.50%.
D->Based on your analysis, do you believe the common shares
are over or under valued?
E->Create a two variable data table in excel by varying the
growth rate in free cash flow from 2% to 6% in .50% increments and
risk free rate from 1% to 5% in .50% increments to show the impact
on your expected stock price above.
F>Create scenario analysis in excel by assuming in a best
case scenario, FCF growth will be 5% and the market risk premium
will only be 3%. In a worst case scenario assume FCF growth will be
1% and the market risk premium will only be 6%.