Packaging Corporation of America (PKG) ‒ That’s right. They make cardboard boxes and shipping containers. ‒ is currently selling for $181 per share. The dividends for the next three years are expected to be $5.00 for 2024, $5.60 for 2025, and $6.00 for 2026. The Value Line forecasts the price per share to be between $240 to $345 by the end of 2026. We will use $250. If we desire a rate of return of 10%, using the Discounted Cash Flow Model, what price would we value this stock? Would we consider PKG to be a potentially good investment?
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Packaging Corporation of America (PKG) ‒ That’s right. They make cardboard boxes and shipping containers. ‒ is currently selling for $181 per share. The dividends for the next three years are expected to be $5.00 for 2024, $5.60 for 2025, and $6.00 for 2026. The Value Line
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