An Unlevered Firm Expects to Generate and Payout Free Cash

question 46

Multiple Choice

An unlevered firm expects to generate and payout free cash flows of $120,000 annually in the form of dividends and share repurchases starting next year.The discount rate is 13% and there are 125,000 shares outstanding.What is the current value per share?

• A) $7.38
• B) $0.96
• C) $1.08
• D) $6.87

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Definitions:

Inventory Increase

An rise in the quantity or value of goods held by a company for the purpose of sale in the normal course of business.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including the cost of the materials and labor directly involved in creating the good.

Accounts Payable Decrease

A reduction in the amount a company owes to its suppliers or vendors, indicating payments have been made.

Direct Method

A approach to cash flow statement preparation where actual cash receipts and payments are reported, instead of adjusting net income.