Covan, Inc. is expected to have the following free cash flow:a. Covan has 7 million shares outstanding, $4 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price?b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price?c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2?a. Covan has 7 million shares outstanding, $4 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price?The stock price should be $(Round to the nearest cent.)b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price?If you plan to sell Covan at the beginning of year 2, its price should be $(Round to the nearest cent.)c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2?Your expected return from holding Covan stock until the beginning of year 2 is %. (Round to one decimal place.)Data table(Click on the following icon in order to copy its contents into a spreadsheet.)YearFCF110212Print313414Done...Grow by 5% per year- X-

The value of cash available to a corporation after covering the costs of doing business is measured…

888 a. Covan has 7 million shares outstanding, $4 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price? b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2?

888 a. Covan has 7 million shares outstanding, $4 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price? b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter21: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 5MC: David Lyons, CEO of Lyons Solar Technologies, is concerned about his firms level of debt financing....

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Covan, Inc. is expected to have the following free cash flow: a. Covan has 8 million shares outstanding, $2 million in excess cash, and it has no debt. If its cost of capital is 10%, what should be its stock price? Covan reinvests all its FCF and has no plans to add debt or change its cash holdings. If you plan to sell Covan at the beginning of year 2, what is its expected price? c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2? a. Covan has 8 million shares outstanding, $2 million in excess cash, and it has no debt. If its cost of capital is 10%, what should be its stock price? The current stock price should be $ (Round to the nearest cent.) Covan reinvests all its FCF and has no plans to add debt or change its cash holdings. If yqu plan to sell Covan at the beginning of year 2, what is its expected price? If you plan to sell Covan at the beginning of year 2, its price should be $ (Round to the nearest…
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