Question

URGENT!!! 30 MINUTES LEFT!!! Pearl Corp. is expected to have an EBIT of $2,400,000 next year....

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?

Homework Answers

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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