The Following Information Is Available for Two Different Common Stocks

question 65

Essay

The following information is available for two different common stocks: company A and Company B.
$$\begin{array} { | l | l | l |} \hline & { \text { Company A } } & { \text { Company B } } \\\hline \begin{array} { l } \text { Free frsh flow per share } \\\text { in the curent year }\end{array} & \$ 1.00 & \$ 5.00 \\\hline \begin{array} { l } \text { Grawthrate in cath flow } \\\text { per share }\end{array} & 8 \% & 4 \% \\\hline \text { Beta } & 1.3 & .8 \\\hline \text { Risk-free return } & 7 \% & 7 \% \\\hline \begin{array} { l } \text { Expected return on all } \\\text { stacks }\end{array} & 13.5 \% & 13.5 \% \\\hline\end{array}$$
a. Estimate the cost of equity for each firm.
b. Assume that the companies' growth rates will continue at the same rate indefinitely. Estimate the per share value of each companies common stock.

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HIV

Human Immunodeficiency Virus, a virus that attacks the immune system and can lead to AIDS if not treated.

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Foreign Substances

Materials or elements that are not naturally part of the body or a particular ecosystem, which can sometimes trigger immune responses or toxic reactions.