Ward Corp. is expected to have an EBIT of $2,300,000 next year. Depreciation, th

Question

Ward Corp. is expected to have an EBIT of $2,300,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $173,000, $101,000, and $123,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $17,000,000 in debt and 830,000 shares outstanding. At Year 5, you believe that the company's sales will be $16,700,000 and the appropriate price–sales ratio is 2.8. The company’s WACC is 8.8 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.) Share price $

Explanation / Answer

Factors in $ Growth rate, g After 5 yrs (in $) multiplication factor EBIT 23,00,000 16% 41,64,471 (1+g)^4 Depreciation 1,73,000 16% 3,13,241 (1+g)^4 Working Capital 1,01,000 16% 1,82,875 (1+g)^4 Capital spending 1,23,000 16% 2,22,709 (1+g)^4 Debt 1,70,00,000 Shares 8,30,000 Sales (yr 5) 1,67,00,000 1,67,00,000 Price-Sale ratio 2.8 WACC 8.8 Tax rate 40% Capitalization (Price-Sale ratio)*Sales 4,67,60,000 Share Price Capitalization/Shares 56 Answer

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