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(solution) Laissez faire has EPS of 1.89, 750000 common stock shares


Laissez faire has EPS of 1.89, 750000 common stock shares outstanding and recently paid a dividend of .65. Additionally the firm generated a net income of 1,417, 500 and has common stock equity of 6,000,000 (book value) The firm has a constant rate of growth and your required rate of return is 18%. The firm?s stock is selling for $45 per share. Would you purchase stock in the firm, why or why not? Use the present value of cash flows model and free cash flow approach to determine your answer. The firm?s current FCF is $109237 and the WACC is 15.83% discount.


Would your decision to purchase shares of Laissez faire common stock change if?rather than expecting the firm to experience a constant rate of growth?you expect the following variable growth pattern?

a. Fast growth of 25% for years 1 through 6

b. Moderate growth of 20% for years 7 through 10

c. Stable growth of 15% for years 11 and beyond



 


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