Question

URGENT!!! 30 MINUTES LEFT!!! Pearl Corp. is expected to have an EBIT of $2,400,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $105,000, and $145,000, respectively. All are expected to grow at 20 percent per year for four years. The company currently has $12,500,000 in debt and 1,050,000 shares outstanding. At Year 5, you believe that the company's sales will be $20,400,000 and the appropriate price-sales ratio is 2.6. The company’s WACC is 8.9 percent and the tax rate is 21 percent. |

What is the price per share of the company's stock? |

Answer #1

1 | 2 | 3 | 4 | 5 | |

EBIT | 2,400,000 | 2,880,000 | 3,456,000 | 4,147,200 | 4,976,640 |

Depreciation | 160,000 | 192,000 | 230,400 | 276,480 | 331,776 |

NWC | 105,000 | 126,000 | 151,200 | 181,440 | 217,728 |

Capex | 145,000 | 174,000 | 208,800 | 250,560 | 300,672 |

FCF | 1,806,000 | 2,109,600 | 2,531,520 | 3,037,824 | 3,645,389 |

TV | 53,040,000 | ||||

EV | $44,568,525 | ||||

Equity Value | $32,068,525 | ||||

Stock Price | $30.54 |

Forecast EBIT, depreciation, NWC and Capex given the growth rate for the next five years

Free Cash Flow (FCF) = EBIT x (1 - tax) + Depreciation - NWC - Capex

Terminal Value (TV) = Sales x P/S

Enterprise Value (EV) is the present value of FCF and TV using WACC

Equity Value = EV - Debt

Stock Price = Equity Value / No. of shares

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