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Years 1-5 Years 6-10 Residual Value After-tax cash flows $150,000 (each year) $200,000 (each year) $5,000,000 The above...

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Finance

Years 1-5 Years 6-10 Residual Value

After-tax cash flows $150,000 (each year) $200,000 (each year)$5,000,000

The above table depicts the consensus estimate of free cashflows for Paradise, Inc. What is the intrinsic per-share value ofthe firm given a required rate of return of 9% and 350,000 sharesoutstanding? (Assume that the year one through 10 cash flows arereceived at the end of the year and the residual value is receivedon January 1 of year 11).

a. $9.92 per share

b. $13.17 per share

c. $12.40 per share

d. $9.15 per share

Answer & Explanation Solved by verified expert
4.1 Ratings (873 Votes)
Intrinsic Value per share Present Value of future cash flows Year Aftertax cash flows Present Value Factor at 9 Present Value of Aftertax cash flows 1    See Answer
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Transcribed Image Text

Years 1-5 Years 6-10 Residual ValueAfter-tax cash flows $150,000 (each year) $200,000 (each year)$5,000,000The above table depicts the consensus estimate of free cashflows for Paradise, Inc. What is the intrinsic per-share value ofthe firm given a required rate of return of 9% and 350,000 sharesoutstanding? (Assume that the year one through 10 cash flows arereceived at the end of the year and the residual value is receivedon January 1 of year 11).a. $9.92 per shareb. $13.17 per sharec. $12.40 per shared. $9.15 per share

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