Dewey Corp. is expected to have an EBIT of $2,850,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $220,000, $125,000, and $225,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $17,000,000 in debt and 835,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.8 percent indefinitely. The company’s WACC is 9.2 percent and the tax rate is 23 percent. What is the price per share of the company's stock?Dewey Corp. is expected to have an EBIT of $2,850,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $220,000, $125,000, and $225,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $17,000,000 in debt and 835,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.8 percent indefinitely. The company’s WACC is 9.2 percent and the tax rate is 23 percent. What is the price per share of the company's stock?Dewey Corp. is expected to have an EBIT of $2,850,000 next year.
FCF1 = [EBIT * (1 - t)] + Depreciation - Capital Spending - Increase in NWC
= [$2,850,000 * (1 - 0.23)] + $220,000 - $125,000 - $225,000
= $2,194,500 - $130,000 = $2,064,500
Firm Value = [FCF1 / (1 + WACC)] + [{FCF1 * (1 + g1)} / (1 + WACC)2] + [{FCF1 * (1 + g1)2} / (1 + WACC)3] + [{FCF1 * (1 + g1)3} / (1 + WACC)4] + [{FCF1 * (1 + g1)4} / (1 + WACC)5] + [{FCF1 * (1 + g1)4 * (1 + gC)} / {(WACC - gC) * (1 + WACC)4}]
= [$2,064,500 / (1 + 0.092)] + [{$2,064,500 * (1 + 0.16)} / (1 + 0.092)2] + [{$2,064,500 * (1 + 0.16)2} / (1 + 0.092)3] + [{$2,064,500 * (1 + 0.16)3} / (1 + 0.092)4] + [{$2,064,500 * (1 + 0.16)4} / (1 + 0.092)5] + [{$2,064,500 * (1 + 0.16)4 * (1 + 0.028)} / {(0.092 - 0.028) * (1 + 0.092)5}]
= $1,890,567.77 + $2,008,295.43 + $2,133,354.12 + $2,266,200.35 + $2,407,319.05 + $38,667,562.21
= $49,373,298.92
Equity Value = Firm Value - Value of debt = $49,373,298.92 - $17,000,000 = $32,373,298.92
Share Price = Equity Value / No. of shares outstanding = $32,373,298.92 / 835,000 = $38.77
Dewey Corp. is expected to have an EBIT of $2,850,000 next year. Depreciation, the increase in...
Dewey Corp. is expected to have an EBIT of $2,850,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $220,000, $125,000, and $225,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $17,000,000 in debt and 835,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.8 percent indefinitely. The company's WACC is 9.2 percent and the...
Dewey Corp. is expected to have an EBIT of $2,800,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $215,000, $120,000, and $220,000, respectively. All are expected to grow at 15 percent per year for four years. The company currently has $16,500,000 in debt and 830,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.7 percent indefinitely. The company’s WACC is 9.1 percent and the...
Dewey Corp. is expected to have an EBIT of $2,900,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $225,000, $130,000, and $230,000, respectively. All are expected to grow at 17 percent per year for four years. The company currently has $17,500,000 in debt and 840,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.9 percent indefinitely. The company’s WACC is 9.3 percent and the...
Dewey Corp. is expected to have an EBIT of $3,450,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $280,000, $185,000, and $285,000, respectively. All are expected to grow at 17 percent per year for four years. The company currently has $23,000,000 in debt and 895,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.9 percent indefinitely. The company’s WACC is 9.3 percent and the...
Dewey Corp. is expected to have an EBIT of $3,150,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $250,000, $155,000, and $255,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $20,000,000 in debt and 865,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.5 percent indefinitely. The company’s WACC is 8.6 percent and the...
Dewey Corp. is expected to have an EBIT of $2,950,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $230,000, $135,000, and $235,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $18,000,000 in debt and 845,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.1 percent indefinitely. The company’s WACC is 9.4 percent and the...
Dewey Corp. is expected to have an EBIT of $2,600,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $195,000, $100,000, and $200,000, respectively. All are expected to grow at 17 percent per year for four years. The company currently has $14,500,000 in debt and 810,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.3 percent indefinitely. The company’s WACC is 8.6 percent and the...
Dewey Corp. is expected to have an EBIT of $3,450,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $280,000, $185,000, and $285,000, respectively. All are expected to grow at 17 percent per year for four years. The company currently has $23,000,000 in debt and 895,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.9 percent indefinitely. The company’s WACC is 9.3 percent and the...
Dewey Corp. is expected to have an EBIT of $3,150,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $250.000, $155,000, and $255,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $20,000,000 in debt and 865,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.5 percent indefinitely. The company's WACC is 8.6 percent and the...
Pearl Corp. is expected to have an EBIT of $2,700,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $120,000, and $160,000, respectively. All are expected to grow at 17 percent per year for four years. The company currently has $14,000,000 in debt and 1,200,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.5 percent indefinitely. The company’s WACC is 9.3 percent and the...