The company is generating a cash flow of $300,000 every year. The market interest rate is...
The company is generating a cash flow of $300,000 every year. The market interest rate is 18%. The company has 100,000 shares outstanding. What is the value of the company’s share?
Homework Answers
Here cash flow of 300000 is generated for infinite period
Now cash flow per share is 3(300000/100000)
So present value formulae is derived as below
Pv =3/1.18 + 3/(1.18)^2---------------3/(1.18)^infinity
= 3( sum of infinite terms of geometric progression) = 3(a)/r-1
= 3( 1/1.18)/0.18/1.18
= 3/0.18 = 16.67
So share value is 16.67
The above process is derivation of formula
You can directly use formulae which is cash flow / rateof interest
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