Ashely's CFO wants to use P/E ratio to value the stock's terminal value in year 4. The CFO forecasts the industry P/E ratio in y (year 0)? O A. $6.98 B. $12.56
Ashely's CFO wants to use P/E ratio to value the stock's terminal value in year 4. The CFO forecasts the industry P/E ratio in y (year 0)? O A. $6.98 B. $12.56
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Ashely Corporation has 80 million outstanding equity shares and the following projected financial information for the next four years. The tax rate is 25%. Ashely's cost of capital is 13%. Assume Ashely is full
financed with equity.
Year
1
4
Earnings Forecast ($millions)
1 Sales
474.28
520.31
571.88
728.99
2 Cost of Goods Sold
269.53
308.19
335.68
490.25
3 Selling, General & Admin.
4 Depreciation
5 Net Income
Capital Requirements ($millions)
6 Capital Expenditures
7 Increase in Net Working Capital
102,05
108.25
105.24
135.76
12.00
15.00
12,50
15.50
68.03
66.65
88.85
65.61
8.80
11.50
10.60
12.50
6.80
7.20
8.25
9.15
Ashely's CFO wants to use P/E ratio to value the stock's terminal value in year 4. The CFO forecasts the industry P/E ratio in year 4 is 20. Based on the forecasted P/E ratio, what is the stock price of Ashely today
(year 0)?
O A. $6.98
O B. $12.56
OC. $13.13
O D. $2.50
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