Ward Corp. is expected to have an EBIT of $2,200,000 next year. Depreciation, th
ID: 2727557 • Letter: W
Question
Ward Corp. is expected to have an EBIT of $2,200,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $171,000, $97,000, and $121,000, respectively. All are expected to grow at 20 percent per year for four years. The company currently has $16,000,000 in debt and 810,000 shares outstanding. At Year 5, you believe that the company's sales will be $16,500,000 and the appropriate pricesales ratio is 2.6. The company’s WACC is 8.6 percent and the tax rate is 40 percent. What is the price per share of the company's stock? (Details Please)
Explanation / Answer
Ward Corp Given Price -sales ratio Year 5=2.6 Sales =16500000 Marker Price at Yr 5 =16500000*2.6= 42,900,000 Details Year 1 Year 2 Year 3 Year 4 Year 5 EBIT 2,200,000 2,640,000 3,168,000 3,801,600 Income Tax @40% (880,000) (1,056,000) (1,267,200) (1,520,640) Unlevered net Income 1,320,000 1,584,000 1,900,800 2,280,960 Add Depreciation 171,000 205,200 246,240 295,488 Less Net working capital increase (97,000) (116,400) (139,680) (167,616) Less Capital Expenditure (121,000) (145,200) (174,240) (209,088) FCF 1,273,000 1,527,600 1,833,120 2,199,744 Discount Factor @8.6% 0.9208 0.8479 0.7807 0.7189 0.6620 PV of FCF = 1,172,192 1,295,239 1,431,204 1,581,440 Sum of FCF PV year 1-4= 5,480,075 Market Value at year 5 42,900,000 PV of Market Value Yr 5 28,399,335 Total Market Value 33,879,410 Less Value of debt 16,000,000 Market Value of equity 17,879,410 No of common stock outstanding 810,000 Price per Share $ 22.07
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