General Industries is expected to generate the above free cash flows over the next five years, after which free cash flows are expected to grow at a rate of 5% per year. If the weighted average cost of capital is 9% and General Industries has cash of $15 million, debt of $45 million, and 80 million shares outstanding, what is General Industries' expected current share price?

Question

Quizplus · Accepted Answer

A) 11eaabab_c08f_10ec_b90e_519443bc4884_TB5536_11 million; using a financial calculator, V0 = 652.45;
P0 = $(652.45 + 15 - 45) million / 80 million = $7.78

General Industries Is Expected to Generate the Above Free Cash