Patrick Company expects to generate free-cash of $120,000 per year forever. If the firm's required return is 12 percent, the market value of debt is $300,000, the market value of preferred stock is $70,000, and the company has 100,000 shares of stock outstanding. What is the value of Patrick's stock?

Question

Quizplus · Accepted Answer

The correct answer is A. The value of Patrick's stock is $6.30. This is calculated by dividing the free cash flow by the required return and then subtracting the value of the debt and preferred stock.

Patrick Company Expects to Generate Free-Cash of $120,000 Per Year