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Ward Corp. is expected to have an EBIT of $2,750,000 next year. Depreciation, the increase in...

Ward Corp. is expected to have an EBIT of $2,750,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $182,000, $119,000, and $132,000, respectively. All are expected to grow at 19 percent per year for four years. The company currently has $21,500,000 in debt and 820,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.0 percent indefinitely. The company’s WACC is 9.3 percent and the tax rate is 35 percent.

What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Share price            $

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Expert Solution

FCFF = +Depreciation- Capex- Chng. In Work. Cap.
FCFF = 2750000*(1-0.35)+182000-132000-119000
FCFF = 1718500
WACC= 9.30%
Year Previous year FCF FCF growth rate FCF current year Horizon value Total Value Discount factor Discounted value
1 0 0.00% 1718500 1718500 1.093 1572278.134
2 1718500 19.00% 2045015 2045015 1.194649 1711812.424
3 2045015 19.00% 2433567.85 2433567.85 1.305751357 1863729.903
4 2433567.85 19.00% 2895945.742 2895945.742 1.427186233 2029129.538
5 2895945.742 19.00% 3446175.432 56342233.26 59788408.69 1.559914553 38328002.38
Long term growth rate (given)= 3.00% Value of Enterprise = Sum of discounted value = 45504952.38
Where
Current FCF =Previous year FCF*(1+growth rate)^corresponding year
Unless FCF for the year provided
Total value = FCF + horizon value (only for last year)
Horizon value = FCF current year 5 *(1+long term growth rate)/( WACC-long term growth rate)
Discount factor=(1+ WACC)^corresponding period
Discounted value=total value/discount factor
Enterprise value = Equity value+ MV of debt
45504952.38 = Equity value+21500000
Equity value = 24004952.38
share price = equity value/number of shares
share price = 24004952.38/820000
share price = 29.27

jeff jeffy answered 2 months ago
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