Chapter 10, Problem 6P

(a)

Summary Introduction

Enterprise Value:

The enterprise value is the measurement of total value of a firm’s equity or theoretical value in order to take over its operations by paying all its debts and cash. It is calculated by subtracting total cash and cash equivalents in the summation of market value of equity and debt.

Stock Price:

Stock price is the highest amount an investor is willing to pay for a saleable stock of a firm. It can be calculated by the formula given below:

In the given formula, is enterprise value or present value of expected free cash flows and is price of the share.

To determine:

The stock price of C Incorporation.

(b)

Summary Introduction

To determine:

The stock price of C Incorporation at the beginning of the second year.

(c)

Summary Introduction

To determine:

The expected return from C Incorporation at the end of the second year.