Question

URGENT!! 30 MINUTES LEFT!! You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $3,090,000 this year. Depreciation, the increase in net working capital, and capital spending were $237,000, $102,000, and $475,000, respectively. You expect that over the next five years, EBIT will grow at 18 percent per year, depreciation and capital spending will grow at 23 percent per year, and NWC will grow at 13 percent per year. The company has $17,500,000 in debt and 360,000 shares outstanding. You believe that sales in five years will be $18,810,000 and the price-sales ratio will be 3.1. The company’s WACC is 8.5 percent and the tax rate is 23 percent. |

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

Answer #1

0 | 1 | 2 | 3 | 4 | 5 | |

EBIT | 3,090,000 | 3,646,200 | 4,302,516 | 5,076,969 | 5,990,823 | 7,069,171 |

Depreciation | 237,000 | 291,510 | 358,557 | 441,025 | 542,461 | 667,227 |

NWC | 102,000 | 115,260 | 130,244 | 147,175 | 166,308 | 187,928 |

Capex | 475,000 | 584,250 | 718,628 | 883,912 | 1,087,212 | 1,337,270 |

FCF | 2,039,300 | 2,399,574 | 2,822,623 | 3,319,204 | 3,901,875 | 4,585,291 |

TV | 58,311,000 | |||||

EV | $51,852,296 | |||||

Equity Value | $34,352,296 | |||||

Stock Price | $95.42 |

Forecast EBIT, Depreciation, NWC and Capex given the growth rates.

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

Terminal Value (TV) of the firm = Sales x P/S in year 5

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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