Ward Corp. is expected to have an EBIT of $2,000,000 next year. Depreciation, th
ID: 2727527 • Letter: W
Question
Ward Corp. is expected to have an EBIT of $2,000,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $167,000, $89,000, and $117,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $14,000,000 in debt and 820,000 shares outstanding. At Year 5, you believe that the company's sales will be $16,100,000 and the appropriate pricesales ratio is 2.2. The company’s WACC is 8.2 percent and the tax rate is 40 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 NOT $2.43
Ward Corp. is expected to have an EBIT of $2,000,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $167,000, $89,000, and $117,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $14,000,000 in debt and 820,000 shares outstanding. At Year 5, you believe that the company's sales will be $16,100,000 and the appropriate pricesales ratio is 2.2. The company’s WACC is 8.2 percent and the tax rate is 40 percent.
Explanation / Answer
Price of Share is $ 29.67.
Year 5 Shares Outstanding 820000 Sales 16,100,000 Price Sales Ratio 2.2 Sales Per Share 20 Price Sales Ratio = 2.2 Price Per Share/Sales Per Share = 2.2 Price Per Share/20 = 2.2 Price Per Share = 44 Discount Rate = 8.2% Present Value of discount factor = 0.674 Price of Share = 29.67Related Questions
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