If the firm has 200,000 common shares outstanding, zero preferred shares, and debt with a market value of $10,000,000 what would be the value of each share

The complete question is:

Acme Medical Corp. is expecting the cash flows from 2018-2022 in the table below. After 2022 it is expecting growth in cash flow at an annual rate of 3%. The firm has determined that its weighted average cost of capital (discount rate) is 7%. Using the table below calculate the following:

Year Cash flow

2018 500,000

2019 550,000

2020 620,000

2021 700,000

2022 800,00

Share value = $36.23

Explanation:

First of all we need to calculate the present value of future cash flows of the company

Weighted average cost of capital is given as 7% so discounts will be made against 1.07

Present value = 500,000/(1+0.07) + 550,000/(1+0.07)^2 + 620,000/(1+0.07)^3 +700,000 /(1+0.07)^4 + 800,000/(1+0.07)^5 + [(824,000/0.04)/(0.07)^5]

Present value =$17,245,716.59

Share value will be present value of future cash flows minus market value of the company, and divided by number of shares

Share value = (17,245,716.59 - 10,000,000) ÷ 200,000

Share value = $7,245,716.59 ÷ 200,000

Share value = $36.23

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