Assume that XYZ Company generated cash flows of $2.00 per share last year. XYZ's cost of capital is 12%. Estimate
the value per share of XYZ for each of the following sets of assumptions.
1.No future growth is expected.
2.Constant future growth of 6% is expected.
3.Growth of 10% per year is expected for the next three years, followed by constant growth of 6%.
4.Growth is expected to decline from 10% to 6% over the next four years, and then continue at 6%.
5.Growth of 10% per year is expected for the next two years, declining to 6% over the next four years, and then continuing at 6%.
6.Growth is expected to be 12% in year one, 11% in year two, 10% in year three, then decline to 6% over the next four years, and then continue at 6%.
1.No future growth is expected. The price per share = cash flow next year/(Cost of capital - growth rate) = 2 / (0.12-0) =... View the full answer