Hallowell Inc. has free cash flow of $2.5 million and 1.25 million shares outstanding. If you believe the price to cash flow ratio for this company should be 11, what is the highest price you should pay for the stock?

Question

Quizplus · Accepted Answer

The highest price you should pay for the stock is calculated by first finding the total value of the company based on the price to cash flow ratio, which is $2.5 million * 11 = $27.5 million. Then, divide this total value by the number of shares outstanding to find the price per share: $27.5 million / 1.25 million shares = $22.00 per share.