Question

Ward Corp. is expected to have an EBIT of $2,650,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $180,000, $115,000, and $130,000, respectively. All are expected to grow at 17 percent per year for four years. The company currently has $20,500,000 in debt and 850,000 shares outstanding. At Year 5, you believe that the company's sales will be $17,400,000 and the appropriate price?sales ratio is 2.6. The company’s WACC is 9.5 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.) SHOW WOl'"R<k[;.

Answer 1

	Year		1	2	3	4	5
	EBIT		2650000	3100500	3627585	4244274	4965801
	Tax @ 35%		927500	1085175	1269655	1485496	1738030
	NOPAT		1722500	2015325	2357930	2758778	3227771
	Net capital spending -
	Capital spending		130000	152100	177957	208209.7	243605.3
	Less: Depreciation		180000	210600	246402	288290.3	337299.7
	Add: Increase in NWC		115000	134550	157423.5	184185.5	215497
	Net capital spending -		65000	76050	88978.5	104104.8	121802.7
	FCF = NOPAT - Net capital spending		1657500	1939275	2268952	2654674	3105968
	PV factor @ 9.5%		0.913242	0.834011	0.761654	0.695574	0.635228
	Pv of FCF		1513699	1617377	1728156	1846523	1972997
	Total PV of FCF( Explicit forecast period)		8678751
	Horizon value =
	P/S Ratio =			2.5
	Sales =			17400000
	Market value at t=5 -			P/S x Sales
				43500000
	PV of Value =			43500000/(1.095^5)
				27632403
	Value of firm =			8678751 + 27632403
				36311154
	Less: Value of debt			20500000
	Value of shares			15811154
	Divide by No. of shares			850000
	Price per share			18.60136