|
Pearl 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 $160,000, $130,000, and $170,000, respectively. All are expected to grow at 19 percent per year for four years. The company currently has $15,000,000 in debt and 1,300,000 shares outstanding. At Year 5, you believe that the company's sales will be $23,840,000 and the appropriate price-sales ratio is 2.1. The company’s WACC is 8.5 percent and the tax rate is 21 percent. |
|
What is the price per share of the company's stock? |
Expected FCF, FCF1 = EBIT * (1 - Tax Rate) + Depreciation -
Increase in NWC - Capital Spending
Expected FCF, FCF1 = $2,900,000 * (1 - 0.21) + $160,000 - $130,000
- $170,000
Expected FCF, FCF1 = $2,151,000
Growth rate for next 4 years is 19%
FCF2 = $2,151,000 * 1.19 = $2,559,690
FCF3 = $2,559,690 * 1.19 = $3,046,031
FCF4 = $3,046,031 * 1.19 = $3,624,777
FCF5 = $3,624,777 * 1.19 = $4,313,485
Price-Sales Ratio = Horizon Value of Firm / Sales
2.10 = Horizon Value of Firm / $23,840,000
Horizon Value of Firm = $50,064,000
WACC = 8.50%
Value of Firm = $2,151,000/1.085 + $2,559,690/1.085^2 +
$3,046,031/1.085^3 + $3,624,777/1.085^4 + $4,313,485/1.085^5 +
$50,064,000/1.085^5
Value of Firm = $45,320,636
Value of Equity = Value of Firm - Value of Debt
Value of Equity = $45,320,636 - $15,000,000
Value of Equity = $30,320,636
Price per share = Value of Equity / Number of shares
outstanding
Price per share = $30,320,636 / 1,300,000
Price per share = $23.32
Pearl Corp. is expected to have an EBIT of $2,900,000 next year. Depreciation, the increase in...
Pearl Corp. is expected to have an EBIT of $3,600,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $165,000, and $205,000, respectively. All are expected to grow at 20 percent per year for four years. The company currently has $18,500,000 in debt and 1,650,000 shares outstanding. At Year 5, you believe that the company's sales will be $30,610,000 and the appropriate price-sales ratio is 2.8. The company’s WACC is 9.3 percent...
Pearl Corp. is expected to have an EBIT of $3,700,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $170,000, and $210,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $19,000,000 in debt and 1,150,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.5 percent indefinitely. The company's WACC is 9.4 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...
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...
Pearl Corp. is expected to have an EBIT of $3,400,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $155,000, and $195,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $17,500,000 in debt and 1,350,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.5 percent indefinitely. The company’s WACC is 9.1 percent and the...
Ward Corp. is expected to have an EBIT of $2,650,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $180,000, $115,000, and $130,000, respectively. All are expected to grow at 17 percent per year for four years. The company currently has $20,500,000 in debt and 850,000 shares outstanding. At Year 5, you believe that the company's sales will be $17,400,000 and the appropriate price–sales ratio is 2.6. The company’s WACC is 9.5 percent...
Ward 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 $181,000, $117,000, and $131,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $21,000,000 in debt and 810,000 shares outstanding. At Year 5, you believe that the company's sales will be $17,500,000 and the appropriate price–sales ratio is 2.7. The company’s WACC is 9.4 percent...
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 $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...