Ward Corp. is expected to have an EBIT of $2,050,000 next year. Depreciation, th

Question

Ward Corp. is expected to have an EBIT of $2,050,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $168,000, $91,000, and $118,000, respectively. All are expected to grow at 17 percent per year for four years. The company currently has $14,500,000 in debt and 830,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.5 percent indefinitely. The company’s WACC is 8.3 percent and the tax rate is 35 percent. What is the price per share of the company's stock?

Explanation / Answer

A / 1 B C D E F G H I 2 Ward Corp. 3 period 0 1 2 3 4 5 5 4 EBIT $2,050,000 5 Tax 35% $717,500 6 Net Income $1,332,500 7 Add:Depreciation $168,000 8 Operating Cashflow $1,500,500 9 Increase in WC $91,000 10 Capital Spending $118,000 11 Free Cashflow $1,291,500 $1,511,055 $1,767,934 $2,068,483 $2,420,125 $52,183,952 12 Growth rate 17% 17% 17% 17% 3.50% 13 WACC 8.30% 8.30% 8.30% 8.30% 8.30% 8.30% 14 Discounted cash flows $1,192,521 $1,288,319 $1,391,813 $1,503,620 $1,624,410 $35,026,334 15 16 Total discounted cashflows $42,027,016 17 Less:Debt $14,500,000 18 Discounted cashflow for equity $27,527,016 19 No of outstanding equity shares 830000 20 Price per share $33.17

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