Answer to Question #233165 in Finance for Ahmed Twam

Question

Ali Inc. expects to generate free-cash of $200000per year forever. If the firm's cost of capital is 0.15 percent,the firm cost of equity capital is 0.16 the market value of debt is $320000, the market value of preferred stock is $180000, and the company has 120000 shares of stock outstanding. What is the value of Ali's stock?what is the value of the firm

Answer for part 1

what is the value of the c.s?

Answer 1

$200000 × 0.15 = 30000$

$0.16 × 320000 = 51200$

$30000+51200 = 81200$

$= 81200 + 180000 = 261000$

$\frac{261000}{120000}$ $= 2.175$

$Value of stock = 2.175$