No plans to add debt or change its cash holdings

Assignment Help Financial Management

Reference no: EM132020498

Covan, Inc. is expected to have the following free cash flow:

Year 1 2 3 4

FCF 13 15 16 17 Grow by 3 % per year

a. Covan has 6 million shares outstanding, $3 million in excess cash and it has no debt. If its cost of capital is 10 %, what should be its stock price?

b. Covan reinvests all its FCF and has no plans to add debt or change its cash holdings? (it does not invest its cash holdings). If you plan to sell Covan at the beginning of year 2, what is its expected price?

c. Assume you bought Covan stock at the beginning of year 1. What is your expected % return from holding Covan stock until year 2. Your expected return from holding Covan stock until the beginning of year 2 is (%)?

Reference no: EM132020498

Questions Cloud

Manage the short-financing needs of the organization : How does the organization “manage” the short-financing needs of the organization?

What is the project net present value : The cost of capital is 12 percent. What is the project’s net present value if the tax rate is 39 percent?

Consumption is the bypass ratio of the engine system : "A contributing factor to an airplane's duel consumption is the bypass ratio of the engine system.

Risks and benefits of conducting business internationally : What are the risks and benefits of conducting business internationally?

No plans to add debt or change its cash holdings : Covan reinvests all its FCF and has no plans to add debt or change its cash holdings?

What features will you focus on when creating bond portfolio : what's the bond investment strategy you would develop and what features will you focus on when creating the bond portfolio.

What should be the price of portage bay stock : If Portage Bay's equity cost of capital is 12 % and it has 4 million shares outstanding, what should be the price of Portage Bay stock?

What is the value of flash-in-the-pan to fly-by-night : What is the cost to Fly-By-Night of each alternative? What is the value of Flash-in-the-Pan to Fly-By-Night?

What is the net present value of switch if you ignore taxes : The monthly interest rate is .3 percent. What is the net present value of the switch if you ignore taxes?

User Account

All Pages