What is the fair market value of share of tlp stock

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Reference no: EM132044242

TLP corporation had operating cash flow of $3.20 per share last year, and has 1.5 million shares outstanding. Given TLP’s existing asset base, this level of cash flow can be sustained forever. TLP has existing liabilities with a market value of $3 million.

(a) If TLP has no other assets, and a discount rate of 13% per year is appropriate, what is the fair market value of a share of TLP stock?

(b) Assume now that TLP has just made a breakthrough in biomedical engineering. The new project will require an immediate capital expenditure of $2.5 million, plus another $2.5 million outlay after one year. At the end of the second year the project will generate positive cash flow of $1.1 million. Subsequent cash flows from the project will grow by 4% per year in perpetuity. Given that TLP has made this breakthrough, and still assuming a 13% discount rate, what is the fair market value of a share of TLP stock?

Reference no: EM132044242

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