Question

Question 1

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $4,950,000 this year. Depreciation, the increase in net working capital, and capital spending were $330,000, $166,000, and $580,000, respectively. You expect that over the next five years, EBIT will grow at 15 percent per year, depreciation and capital spending will grow at 20 per year, and NWC will grow at 10 per year. The company has $28,000,000 in debt and 485,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.45 percent indefinitely. The company’s WACC is 9.75 percent and the tax rate is 22 percent. What is the price per share of the company's stock?

Question 2

Dewey Corp. is expected to have an EBIT of $2,700,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $205,000, $110,000, and $210,000, respectively. All are expected to grow at 19 percent per year for four years. The company currently has $15,500,000 in debt and 820,000 shares outstanding. At Year 5, you believe that the company's sales will be $27,900,000 and the appropriate price-sales ratio is 2.6. The company’s WACC is 8.8 percent and the tax rate is 25 percent. What is the price per share of the company's stock?

Answer 1

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