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Duplan Street Mills is an all-equity firm with 28,000 shares of stock outstanding. The firm expects...

Duplan Street Mills is an all-equity firm with 28,000 shares of stock outstanding. The firm expects sales of $600,000 one year from today (next year). Sales are expected to grow by 8 percent per year for the following three years and then level off to a constant 3 percent growth rate per year in perpetuity. Net cash flow varies in direct proportion to sales and is currently equal to 15 percent of sales. The required return for this firm is 14 percent. What is the estimated current value of one share of stock? A. $27 B. $30 C. $33 D. $24

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Answer #1
Year Sales CF PV factor PV
1 600000 90000 0.8771929825 78947.36842
2 648000 97200 0.7694675285 74792.24377
3 699840 104976 0.6749715162 70855.80988
4 755827.2 113374.08 0.5920802774 67126.55673
5 778502.016 116775.3024 0.5193686644 60649.43284
Terminal value 1061593.658

At end of 4th year
PV of terminal 628548.6676
Total 920270.6464

(Sum of year 1 to 4 PV and PV of terminal cash flow)
Per share price 32.8668088

Hence option C is correct

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