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you have looked at the current financial statements for reigie homes co. the company has an...

you have looked at the current financial statements for reigie homes co. the company has an ebit of 3130000 this year. depreciation the increase in net working capital, and capital spending are expected to be 239,000, 104,000 and 485,000 respectively. you expected that over the next five years, ebit will grow at 20 percent per year, depreciation and capital spending will grow at 25 percent per year, and nwc will grow at 15 percent per year. the company currently has 17.9 million in debt and 515,000 shares outstanding. after year 5 the adjusted cash flow from assets is expected to grow at 3.5 percent indefinitely. the company's wacc is 8.7 percent and the tax rate is 25 percent. what is the price per share of the company's stock

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Expert Solution

Reigie 1 2 3 4 5
EBIT 3,130,000 3,756,000 4,507,200 5,408,640 6,490,368
Tax -782,500 -939,000 -1,126,800 -1,352,160 -1,622,592
Depreciation 239,000 298,750 373,438 466,797 583,496
NWC 104,000 119,600 137,540 158,171 181,897
Capex 485,000 606,250 757,813 947,266 1,184,082
FCF 1,997,500 2,389,900 2,858,485 3,417,840 4,085,293
TV 81,313,052
EV $64,807,218
Equity Value $46,907,218
Stock Price $91.08

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

EBIT increases at 20%, Depreciation and Capex increases at 25% and NWC will increase at 15% each year.

Terminal Value (TV) = FCF5 x (1 + g) / (WACC - g) = 4,085,293 x (1 + 3.5%) / (8.7% - 3.5%) = $81,313,052

Enterprise Value (EV) = FCF1 / (1 + WACC) + FCF2 / (1 + WACC)^2 + ... + (FCF5 + TV) / (1 + WACC)^5

= 1,997,500 / 1.087 + 2,389,900 / 1.087^2 + ... + (4,085,293 + 81,313,052) / 1.087^5

= $64,807,218

=> Equity Value = EV - Debt = 64,807,218 - 17,900,000 = $46,907,218

=> Stock Price = 46,907,218 / 515,000 = $91.08


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