Eberhart Manufacturing has projected sales of $148.2 million next year. Costs ar

Question

Eberhart Manufacturing has projected sales of $148.2 million next year. Costs are expected to be $82.6 million, and net investment is expected to be $16.6 million. Each of these values is expected to grow at 14 percent the following year, with the growth rate declining by 2 percent per year until the growth rate reaches 6 percent, where it is expected to remain indefinitely. There are 7.1 million shares of stock outstanding and investors require a return of 13 percent on the company’s stock. The corporate tax rate is 39 percent. a. What is your estimate of the current stock price

Explanation / Answer

Solution : Figures in $ Sales 148200000 less : cost 82600000 PBT 65600000 Less Tax 39% 25584000 PAT 40016000 less : Investment 16600000 CFAT 23416000 As Every thing grows so Year Growth % CFAT PVF 13% PV 1 23416000 0.884955752 20722123.89 2 14% 26694240 0.783146683 20905505.52 3 12% 29897548.8 0.693050162 20720501.05 4 10% 32887303.68 0.613318728 20170399.25 5 8% 35518287.97 0.542759936 19277903.71 6 6% 37649385.25 0.480318527 18083697.28 T.V. 6% 570119262.4 0.480318527 273838844.6 Total value 393718975.3 No of share outstanding 7100000 Current stock price 393718975.3 / 7100000 55.4533768

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