Volatile, Inc. has expected future FCF next year of $200. The capital market currently expects...
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Volatile, Inc. has expected future FCF next year of $200. The capital market currently expects that Volatile, Inc. will have a growth rate of 4.5%. Volatile has a beta of 0.11 and 1,000 shares of common equity. Volatile has no debt. The market risk premium is 5% and the risk-free rate is 5%.
a. What is Volatile, Inc. price per share?
b. Suppose that tomorrow, the market adjusts its growth rate to 4.0%. What will Volatiles price per share be?
c. Suppose you hear someone on CNBC screaming about how big stock price changes must be evidence of investor irrationality. How would you explain to someone why Volatiles price changed by so much when its growth rate only changed by one-half a percentage point?
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