Ward Corp. is expected to have an EBIT of $2,050,000 next year. Depreciation, th
ID: 2784384 • Letter: W
Question
Ward Corp. is expected to have an EBIT of $2,050,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $168,000, $91,000, and $118,000, respectively. All are expected to grow at 17 percent per year for four years. The company currently has $14,500,000 in debt and 830,000 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 8.3 percent and the tax rate is 35 percent.
What is the price per share of the company's stock? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
Ward Corp. is expected to have an EBIT of $2,050,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $168,000, $91,000, and $118,000, respectively. All are expected to grow at 17 percent per year for four years. The company currently has $14,500,000 in debt and 830,000 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 8.3 percent and the tax rate is 35 percent.
Explanation / Answer
Income after tax =EBIT [1-Tax]
= 2,050,000[1-.35]
= 1,332,500
Free cash flow for year1 =Income after tax+ Depreciation -increase in working capital-capital spending
= 1,332,500+168,000-91,000-118,000
= 1,291,500
FCF2=1291500(1+.17]= 1511055
FCF3= 1511055[1+.17]= 1767934.35
FCF4=1767934.35[1+.17]= 2068483.19
FCF5= 2068483.19[1+.17]= 2420125.33
Terminal value at year 5= FCF5(1+g]/(WACC-g]
= 2420125.33(1+.035)/(.083-.035)
= 2420125.33*1.035/.048
= $ 52183952.43
Value of equity =value of company -value of debt
= 42,027,076.08-14,500,000
= 27,527,076.08
value per share = 27,527,076.08/830,000
= $ 33.17 per share
year Free cash flow PVF@8.3% value of company [FCF*PVF] 1 1291500 .92336 1192519.44 2 1511055 .85260 1288325.49 3 1767934.35 .78725 1391806.32 4 2068483.19 .72692 1503621.80 5 2420125.33 .67121 1624412.32 Terminal value 52183952.43 .67121 35026390.71 Value of company 42,027,076.08Related Questions
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