Use the Information for the Question(s)below

question 20

Multiple Choice

Use the information for the question(s) below.
Gonzales Corporation generated free cash flow of $88 million this year.For the next two years,the company's free cash flow is expected to grow at a rate of 8%.After that time,the company's free cash flow is expected to level off to the industry long-term growth rate of 4% per year.Suppose the weighted average cost of capital is 10% and Gonzales Corporation has cash of $100 million,debt of $300 million,and 100 million shares outstanding.
-What is Gonzales Corporation's expected current share price?

• A)$16.42
• B)$13.85
• C)$14.42
• D)$18.42
• E)$19.34

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Definitions:

Deferred Tax Asset Valuation Allowance

A reserve established against a deferred tax asset when it is likely that some or all of the asset will not be utilized.

Valuation Allowance

An accounting provision made to offset a portion of the deferred tax assets if it's more likely than not that some portion or all of the asset may not be realized.

Deferred Tax Asset

An accounting item that refers to a situation where a business has paid more taxes in advance than its current tax liability, or has carryover of losses that can be used to lower future tax payments.

Year-end Deferred Income Taxes

Taxes on income that is earned in one accounting period but not paid until another, resulting from timing differences between accounting recognition and the tax laws.