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