1. Company ELG generated cash flows of $2.00 per share last year. ELG’s cost of capital 12%. Estimate the value per share of ELG for each of the following sets of assumptions.
A) Growth is expected to decline from 10% to 6% over the next four years:
B) 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%:
C) 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%:
2. Calculate delta airline's times-interest-earned ratio for the year end. What does this tell you about delta airlines? (reference required to support the answer)