Question

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

Answer 1

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