Rainy City Coffee's (RCC)free Cash Flow Next Year Will Be

question 31

Essay

Rainy City Coffee's (RCC)free cash flow next year will be $100 million and it is expected to grow at a 4 percent annual rate indefinitely.The company's weighted average cost of capital is 10 percent,the market value of its liabilities is $1 billion,and it has 20 million shares outstanding.a.Estimate the price per share of RCC's common stock.b.A hedge fund believes that by selling the company's private jet and instituting other cost savings,it can increase RCC's free cash flow next year to $110 million and can add a full percentage point to RCC's growth rate without affecting its cost of capital.What is the maximum price per share the hedge fund can justify bidding for control of RCC?

---

Definitions:

Primitive Groove

A depression or furrow on the surface of an early embryo that is involved in the process of gastrulation, leading to the development of different layers.

Gastrulation

An early embryonic phase in animal development during which the single-layered blastula is reorganized into a multilayered structure known as the gastrula.

Morula Stage

An early stage in embryonic development characterized by a solid ball of cells resulting from the division of a fertilized egg.

Human Embryo

A human embryo is an early stage of human development, following fertilization and preceding the fetal stage, during which all major organs and structures begin to form.