Covalent technologies embarks on an aggressive expansion


Covalent Technologies embarks on an aggressive expansion that requires additional capital. Management decides to finance the expansion by borrowing $100 million and by halting dividend payments to increase retrained earnings. The projected free cash flows for the next 3 years are- 15 million, $25 million, and $30 million. After the third year, free cash flow is projected to grow at constant 4%. The overall cost of capital is 10 percent. What Covenant's total value? If the firm currently (before the expansion) has 20 million shares of stock, what is the price per share?

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Financial Management: Covalent technologies embarks on an aggressive expansion
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