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

Question

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 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 final answer to 2 decimal places, e.g., 32.16.) Share price

Explanation / Answer

FCFF1=2750000*(1-0.35)+182000-119000-132000=1718500

Enterprise value=1718500/1.093+1718500*1.19/1.093^2+1718500*(1.19^2)/1.093^3+1718500*(1.19^3)/1.093^4+1718500*(1.19^4)/1.093^5+Terminal Value/1.093^5

Terminal value=1718500*(1.19^4)*1.03/(0.093-0.03)=56342233

So, Enterprise Value=1718500/1.093+1718500*1.19/1.093^2+1718500*(1.19^2)/1.093^3+1718500*(1.19^3)/1.093^4+1718500*(1.19^4)/1.093^5+56342233/1.093^5=45504952

Equity Value=Enterprise Value-Debt

hence, Equity value=45504952-21500000=24004952

Number of shares=820000

So, share price=24004952/820000=$29.27

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