Marshall Law firm expects to generate free-cash flows of $200,000 per year for the next five years. Beyond that time, free cash flows are expected to grow at a constant rate of 5 % per year forever. If the firm's weighted average cost of capital is 15 %, the market value of the firm's debt is $500,000, the market value of its preferred stock is $200,000 and the firm has a half million shares of common stock outstanding, what is the value of its common stock?

Marshall Law firm expects to generate free-cash flows of $200,000 per year for the next five years. Beyond that time, free cash flows are expected to grow at a constant rate of 5 % per year forever. If the firm's weighted average cost of capital is 15 %, the market value of the firm's debt is $500,000, the market value of its preferred stock is $200,000 and the firm has a half million shares of common stock outstanding, what is the value of its common stock?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 9P

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