Use the information provided to estimate the value of XYZ under each of the six assumptions.
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%.
The problem deals with determining the value, of a share, under different conditions.