Question

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $2,870,000 this year. Depreciation, the increase in net working capital, and capital spending are expected to be $226,000, $91,000, and $420,000, respectively. You expect that over the next five years, EBIT will grow at 17 percent per year, depreciation and capital spending will grow at 22 percent per year, and NWC will grow at 12 percent per year. The company currently has $15.3 million in debt and 355,000 shares outstanding. After Year 5. the adjusted cash flow from assets is expected to grow at 3 percent indefinitely. The company's WACC is 8.8 percent and the tax rate is 22 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Share price $ 146.37

Answer 1

price per share = value of equity / shares outstanding

value of equity = value of firm - debt

value of firm = present value of next 5 years FCF + present value of terminal value at end of 5 years

FCF = NOPAT + depreciation - capex - increase in NWC

NOPAT = EBIT * (1 - tax rate)

terminal value at end of 5 years = FCF in year 5 * (1 + growth rate after 5 years) / (WACC - growth rate after 5 years)

present value = future value / (1 + WACC)number of years

value of firm = $61,305,227

value of equity = $61,305,227 - $15,300,000 = $46,005,227

price per share = $46,005,227 / 355,000

price per share = $129.59

1 2 EBIT 3 NOPAT 4 Depreciation 5 Capex 6 Increase in NWC 7 FCF 8 Terminal value 9 PV of FCF 10 PV of Terminal value 11 Firm Value OD 1 $ 2,870,000 $3,357,900 $ 2,238,600 $2,619,162 $ 226,000 $275,720 $ 420,000 $ 512,400 $ 91,000 $ 101,920 $ 1,953,600 $2,280,562 D E F G 2 3 4 $3,928,743 $4,596,629 $5,378,056 $ 6,292,326 $3,064,420 $3,585,371 $4,194,884 $ 4,908,014 $ 336,378 $ 410,382 $ 500,666 $ 610,812 $ 625,128 $ 762,656 $ 930,441 $ 1,135,137 $ 114,150 $ 127,848 $ 143,190 $ 160,373 $2,661,520 $3,105,248 $3,621,919 $ 4,223,316 $ 75,000,261 $2,248,391 $2,411,069 $ 2,584,777 $ 2,770,187 $ 49,194,698 $ 2,096,105 $ 61,305,227