Determine the market value of rome corporation operations

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Question - Rome Corporation invests in the research and development department and will pay no dividends for years to come. Venetian Industries is interested in acquiring shares in Rome Corporation. The CEO of Venetian has estimated Rome's available cash flows for the next 3 years: $ 7 million, $ 9 million and $ 12 million. After the third year, available cash flow is expected to grow 5% steadily. Rome Corporation's weighted average cost of equity (WACC) is 7%, the market value of its debt and preferred shares total $ 60 million. Rome Corporation has $ 22 million of non-operating assets and 9 million common shares outstanding.

a. Calculate the present value of the expected available cash flows for the next 3 years.

b. Determine the market value of Rome Corporation's operations.

c. Calculate an estimate of the price per share of Rome Corporation.

Reference no: EM132846298

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