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As of December 31, 2009, a company’s assets consisted of $60,000 of cash, $120,000 of marketable...

As of December 31, 2009, a company’s assets consisted of $60,000 of cash, $120,000 of marketable securities, $200,000 of accounts receivable, $300,000 of inventory, and $1,200,000 of net plant and equipment. Its liabilities consisted of $50,000 of accounts payable, $20,000 of accruals, $70,000 of notes payable, and $600,000 of long-term debt.


As of December 31, 2010, the company’s assets consisted of $70,000 of cash, $140,000 of marketable securities, $250,000 of accounts receivable, $400,000 of inventory, and $1,300,000 of net plant and equipment. Its liabilities consisted of $65,000 of accounts payable, $15,000 of accruals, $75,000 of notes payable, and $600,000 of long-term debt.

In 2010, the company’s annual sales were $4,700,000, earnings before interest and taxes were $800,000, it paid $60,000 of interest, and its tax rate was 30%. The company’s weighted average cost of capital is 11% per year and it has 500,000 shares of common stock outstanding. The company expects its free cash flow to grow forever at a rate of 6% per year. Estimate the value per share of the company’s common stock.

Please complete in excel and post answer and formulas.

Solutions

Expert Solution

cash

60000

70000

EBIT

800000

marketable securities

120000

140000

interest

60000

accounts receivables

200000

250000

EBT

740000

inventory

300000

400000

less tax-30%

222000

net plant & assets

1200000

1300000

EAT

518000

total of assets

1880000

2160000

cash flow from operating activities

accounts payable

50000

65000

Earning after tax

518000

accruals

20000

15000

add changes in working capital

notes payable

70000

75000

increase in accounts receivables

-50000

long term debt

600000

600000

increase in inventory

-100000

increase in accounts payable

15000

decrease in accruals

-5000

increase in marketable securities

-20000

cash flow from operating activities

358000

Free cash flow = cash flow from operating activities- capital expenditure

358000-100000

258000

value of stock

free cash flow*(1+growth rate) / (required rate of return - growth rate)

258000*(1.06) / (11%-6%)

5469600

value per share

5469600/500000

10.94

jeff jeffy answered 1 year ago
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