Question

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $3.25 million this year. Depreciation, the increase in net working capital, and capital spending were $245,000, $115,000, and $495,000, respectively. You expect that over the next five years, EBIT will grow at 15 percent per year, depreciation and capital spending will grow at 20 percent per year, and NWC will grow at 10 percent per year. The company has $19.5 million in debt and 400,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.2 percent indefinitely. The company's WACC is 9.25 percent, and the tax rate is 21 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.) Share price

Answer 1

Solution: 5 Total 4 EBIT** 3,737,500.00 4,298,125.00 4,942,843.75 5,684,270.31 6,536,910.86 Add De preciation ** Less Taxes = EBIT x 21% Less Change in NWC** Less : Capital spendi ng ** Adjusted cash flow from asset Terminal value*** Total x PV factor at 9.25%** PV 294,000.00 352,800.00 423,360.00 508,032.00 609,638.40 784,875.00 902,606.25 1,037,997.19 1,193,696.77 1,372,751.28 168,371.50 126,500.00 139,150.00 153,065.00 185,208.65 594,000.00 712,800.00 855,360.00 1,026,432.00 1,231,718.40 2,526,125.00 2,896,368.75 3,319,781.56 3,803,802.05 4,356,870.93 74,318,856.18 2,526,125.00 2,896,368.75 3,319,781.56 3,803,802.05 78,675,727.10 0.70196 O.76689 0.64253 0.91533 0.83783 50,551,440.6660,506,405.30 2,312,242.56 2,426,671.34 2,545,922.46 2,670,128.27 Total company value (sum of PV) Less Debt value Equity value / shares outs tandi ng share price 60,506,405.30 19,500,000.00 41,006,405.30 400,000 102.52 *Working: Year EBIT 3250000*(1+0.15)^1 |245000* (1+0.2) ^1 115000*(1+0.1)^1 495000* (1+0.2)^1 |1/(1+0.092 5) ^ 1 23250000*(1+0.15) ^2 | 245000* (1+0.2)^21150000* (1+0.1)^2 495000* (1+0.2)^2 |1/(1+0.0925)^2 33250000*(1+0.15)^3 245000* (1+0.2)^3 |115000* (1+0.1)^3 495000* (1+0.2)^3 1/(1+0.0925)^3 43250000*(1+0.15) ^4 |245000*(1+0.2)^4115000* (1+0.1)^4 495000* (1+0.2)^4 1/(1+0.0925)^4 53250000*(1+0.15)^5 245000* (1+0.2)^5 |115000* (1+0.1)^5 495000* (1+0.2)^5 1/(1+0.0925)^5 Depreciation NWC Capital spending PV factor at 9.25% **Terminal val ue Year cash flow*(1+g)/(WACC-g) 4356870.93*1.032/(0.0925-0.032) 74,318,856.18