Solution-Constant expected growth rate of free cash flow

Constant expected growth rate of free cash flow

Assignment Help Finance Basics

Reference no: EM133111601

Prokter and Gramble? (PKGR) has historically maintained a? debt-equity ratio of approximately 0.25. Its current stock price is $46 per? share, with 2.1 billion shares outstanding. The firm enjoys very stable demand for its? products, and consequently it has a low equity beta of 0.625 and can borrow at 4.0?%, just 20 basis points over the? risk-free rate of 3.8?%.

The expected return of the market is 9.7?%, and? PKGR's tax rate is 30?%.

a. This? year, PKGR is expected to have free cash flows of ?$5.6 billion. What constant expected growth rate of free cash flow is consistent with its current stock? price? (Round to two decimal? places.)

b. PKGR believes it can increase debt without any serious risk of distress or other costs. With a higher? debt-equity ratio of 0.625?, it believes its borrowing costs will rise only slightly to 4.3?%. If PKGR announces that it will raise its? debt-equity ratio to 0.625 through a leveraged? recap, determine the increase or decrease in the stock price that would result from the anticipated tax savings.

Reference no: EM133111601

Questions Cloud

Find the present value of growing perpetuity : 1. You want to save for retirement by making 20 equal annual contributions of $20,000/year starting next year. Unfortunately, you had to miss your 8th contribut

What is the project coefficient of variation : Cheng Inc. is considering a capital budgeting project that has an expected return of 25% and a standard deviation of 30%.

Total intrinsic value per share of long a put : If at expiration, the underlying stock price is $20 per share, what is the total intrinsic value per share of long a put with an exercise price of $40 and short

What is the npv of the new product line? : You are a consultant who has been hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $14

Constant expected growth rate of free cash flow : Prokter and Gramble? (PKGR) has historically maintained a? debt-equity ratio of approximately 0.25. Its current stock price is $46 per? share, with 2.1 billion

What is the project mirr : A project has an initial cost of $65,000, expected net cash inflows of $15,000 per year for 6 years, and a cost of capital of 8%.

Case-interloop limited : Interloop Limited is largest Hosiery producer in Pakistan has annual turnover more than RS 30 Billion, largest exporter of socks, cover 4% global market share.

Record correct adjusting entry to record bad debt expense : The balance in the Allowance for Doubtful Accounts is $700 (CREDIT). Record the correct adjusting entry to record bad debt expense for the year

Determine the roi and roe : You are planning to open a bakery in front of an educational institution in which around 4,000 students are studying.

User Account

All Pages

Constant expected growth rate of free cash flow

Reference no: EM133111601

Reference no: EM133111601

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Financial reporting and analysis

A report on financial accounting

Describe the types of financial ratios

Differences between sole proprietorship and corporation

Prepare a cash budget statement

What are the implied interest rates

State pricing theory and no-arbitrage pricing theory

Small business administration

Effect of financial leverage

Evaluate the basis for the payment to the lender

Importance of opps, ipps, mpfs and dmepos

Time value of money

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT