River Enterprises has $506 million in debt and 17 million shares of equity outstanding. Its excess cash reserves are $16 million. They are expected to generate $195 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises' weighted average cost of capital is 13%. After analyzing the company, you believe that the growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share be if you are right? If the growth rate is 2%, the price per share is $ (Round to the nearest cent.)
River Enterprises has $506 million in debt and 17 million shares of equity outstanding. Its excess cash reserves are $16 million. They are expected to generate $195 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises' weighted average cost of capital is 13%. After analyzing the company, you believe that the growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share be if you are right? If the growth rate is 2%, the price per share is $ (Round to the nearest cent.)
Chapter14: Capital Structure Management In Practice
Section: Chapter Questions
Problem 27P
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![River Enterprises has $506 million in debt and 17 million shares of equity outstanding. Its excess cash reserves are $16 million. They are expected to generate $195 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises' weighted
average cost of capital is 13%. After analyzing the company, you believe that the growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share be if you are right?
If the growth rate is 2%, the price per share is $
(Round to the nearest cent.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9944ad7a-7c01-43eb-a383-ebf5c0ca6eea%2F5eee17e3-30a1-4791-9840-641b0e2bcbb8%2F1u83x7q_processed.jpeg&w=3840&q=75)
Transcribed Image Text:River Enterprises has $506 million in debt and 17 million shares of equity outstanding. Its excess cash reserves are $16 million. They are expected to generate $195 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises' weighted
average cost of capital is 13%. After analyzing the company, you believe that the growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share be if you are right?
If the growth rate is 2%, the price per share is $
(Round to the nearest cent.)
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