Estimate the value of a share

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Sonora Company expects a three year comparative advantage period. Sonora's free cash flow during these three years are estimated to be $5 million, $7 million, and $9 million. After the comparative advantage period is over, free cash flow is expected to increase at a rate of 5 percent per year. Sonora currently has $25 million of debt and 5 million shares of common stock. The standard deviation of company returns is 27 percent, and the company's cost of capital is 14 percent. Estimate the value of a share of Sonora Company Stock.

A) $10.60/share
B) $12.01/share
C) $12.34/share
D) $25.20/share

 

Reference no: EM1375291

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