Question

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $3,230,000 this year. Depreciation, the increase in net working capital, and capital spending were $244,000, $109,000, and $510,000, respectively. You expect that over the next five years, EBIT will grow at 13 percent per year, depreciation and capital spending will grow at 18 percent per year, and NWC will grow at 8 percent per year. The company has $18,900,000 in debt and 395,000 shares outstanding. You believe that sales in five years will be $22,100,000 and the price-sales ratio will be 3.2. The company’s WACC is 9.4 percent and the tax rate is 25 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?

Answer 1

	0	1	2	3	4	5
EBIT	3,230,000	3,649,900	4,124,387	4,660,557	5,266,430	5,951,066
Tax (25%)	-807,500	-912,475	-1,031,097	-1,165,139	-1,316,607	-1,487,766
Depreciation	244,000	287,920	339,746	400,900	473,062	558,213
NWC	-109,000	-117,720	-127,138	-137,309	-148,293	-160,157
Capex	-510,000	-601,800	-710,124	-837,946	-988,777	-1,166,756
FCF	2,047,500	2,305,825	2,595,774	2,921,063	3,285,814	3,694,599
TV						70,720,000
EV	$56,288,056
Equity Value	$37,388,056
Share Price	$94.65

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

Forecast the values given the growth rate in each component.

Terminal Value (TV) = Sales x P/S = 22,100,000 x 3.2 = $70,720,000

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

= 2,305,825 / 1.094 + 2,595,774 / 1.094^2 + ... + (3,694,599 + 70,720,000) / 1.094^5

= $56,288,056

Equity Value = EV - Debt = $37,388,056

Share Price = 37,388,056 / 395,000 = $94.65