A Business That Is Expected to Generate $160,000 in Cash

question 69

Multiple Choice

A business that is expected to generate $160,000 in cash flows for shareholders next year, withperpetual growth expectations of 3% per year, is selling for $1,400,000. Given the business'variability in historical returns, beta is estimated to be 1.1. The current risk free rate is 4% and the current market risk premium is 7.2%. In a competitive market, which of the following is true?

• A) the business is correctly priced; you get what you pay for
• B) the business is overpriced; walk away
• C) cannot be answered with the information provided
• D) the business is underpriced; buy

---

Definitions:

Positive Feelings

Emotions or sensations that are pleasant, uplifting, or fulfilling, such as happiness, joy, or love.

Attractive Woman

A subjective description of a female individual whom others perceive as having physical beauty or appeal.

Bar Graph

is a graphical display of data using bars of different heights or lengths to represent values of different categories or groups.

Scale Values

Scale values refer to the numerical or categorical measurements assigned to variables or responses for the purpose of quantitative analysis.