Chapter 13, Problem 20QAP

Summary Introduction

Adequate information:

Current cash flow from assets for Arras $\left({\text{CF}}_{\text{Ar}}\right)$ = $7,100,000

Growth rate for 5 years $\left(\text{g}\right)$ = 10%

Growth rate after 5 years $\left(\text{G}\right)$ = 4%

Cost of capital for Schultz $\left({\text{K}}_{\text{Sc}}\right)$ = 11%

Cost of capital for Arras $\left({\text{K}}_{\text{Ar}}\right)$ = 9%

Shares outstanding for Arras $\left({\text{SO}}_{\text{Ar}}\right)$ = 2,500,000

Debt outstanding for Arras $\left({\text{DO}}_{\text{Ar}}\right)$ = $22,000,000

To compute: Stock price for the company S.

Introduction: The term Price per share refers to the valuation of the stock based on factors such as growth rate, discount rate, debt obligation, etc.