Conundrum Mining Is Expected to Generate the Above Free Cash

question 23

Multiple Choice

Conundrum Mining is expected to generate the above free cash flows over the next four years, after which they are expected to grow at a rate of 5% per year. If the weighted average cost of capital is 11% and Conundrum has cash of $85 million, debt of $65 million, and 30 million shares outstanding, what is Conundrum's expected current share price?

• A)$12.61
• B)$16.40
• C)$20.18
• D)$20.81

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Definitions:

Market Price

The current value at which an asset or service can be bought or sold in the marketplace.

Shares Outstanding

The total number of a company's shares that are currently owned by all its shareholders, including those held by institutional investors and restricted shares held by company’s insiders.

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares, though the overall value of one's holdings remains the same.

Shareholder Wealth

The total value of a shareholder's equity in a company, taking into account the current market value of shares owned.