Derry Corporation is expected to have an EBIT of $3,200,000 nextyear. Depreciation, the increase in net working capital, and capitalspending are expected to be $255,000, $160,000, and $260,000,respectively. All are expected to grow at 17 percent per year for fouryears. The company currently has $20,500,000 in debt and870,000 shares outstanding. At Year 5, you believe that thecompany's sales will be $28,900,000 and the appropriate price-sales ratio is 2.4. The company's WACC is 8.7 percent and the taxrate is 25 percent. What is the price per share of the company'sstock?Note: Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.Answer is complete but not entirely correct.Share price39.05

To find the correct price per share of Derry Corporation's stock, let's go through the problem step…

Answered: Derry Corporation is expected to have…

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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Prokter and Gramble (PG) currently has $25 billion outstanding debt. PG has a cost of equity capital of 7 percent and a cost of debt capital of 4%. PG's tax rate is 30 percent. PG is expected to have EBIT of $9 billion at the end of this year. If PG's cash flows to equity holders grow at 3% in perpetuity, what is the market value for PG's equity? O $105 billion O $140 billion $165 billion O $100 billion
You have been studying Lucas Corp.’s financial statements. This year, the company has an EBIT of $3.15mil, Depreciation of $295,000, an increase in net working capital of $125,000, and a capital spending of $535,000. You expect that over the next 5 years, EBIT will grow at 15% per year, depreciation and capital spending will grow at 20% per year, and NWC will grow at 10% per year. After year 5, you expect the company’s free cash flow will grow at 3.5% indefinitely. The company has a 21% corporate tax rate and a WACC of 8.9%. a) Compute the free cash flows for the next 5 years. b) Compute the terminal value at the end of year 5. c) What is the company’s enterprise value?
You have looked at the current financial statements for J&R Homes, Company. The company has an EBIT of $2,890,000 this year. Depreciation, the increase in net working capital, and capital spending were $227,000, $92,000, and $425,000, respectively. You expect that over the next five years, EBIT will grow at 18 percent per year, depreciation and capital spending will grow at 23 percent per year, and NWC will grow at 13 percent per year. The company currently has $15.5 million in debt and 415,000 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 8.9 percent and the tax rate is 23 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.) Share price
For the next fiscal year, you forecast net income of $48,700 and ending assets of $506,100. Your firm's payout ratio is 10.1%. Your beginning stockholders' equity is $295,600 and your beginning total liabilities are $119,300. Your non-debt liabilities such as accounts payable are forecasted to increase by $10,500. What is your net new financing needed for next year? The Tax Cuts and Jobs Act of 2017 temporarily allowed 100% bonus depreciation (effectively expensing capital expenditures). However, we will still include depreciation forecasting in this chapter and in these problems. The net financing required will be $ (Round to the nearest dollar.)
The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income inthe current year is $250,000. The company is planning to launch a project that will require aninvestment of $175,000 next year. Currently, the share of Giant machinery is $25/share.Required:a) How much dividend Giant Machinery can pay its shareholders this year and what is the dividendpayout ratio of the company? Assume the Residual Dividend Payout Policy applies. b) If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend.Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%. c) Little Equipment for Hire is a subsidiary in the Giant Machinery and currently under the liquidationplan due to the severe contraction of operation due to coronavirus. The company plans to paya total dividend of $2.5 million now and $ 7.5 million one year from now as a liquidating dividend.The required rate of return for shareholders is 12%.…
The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income inthe current year is $250,000. The company is planning to launch a project that will requires aninvestment of $175,000 next year. Currently the share of Giant machinery is $25/share.Required: How much dividend Giant Machinery can pay its shareholders this year and what is dividendpayout ratio of the company? Assume the Residual Dividend Payout Policy applies.
i need the answer quickly
You have looked at the current financial statements for J&R Homes, Company. The company has an EBIT of $4,650,000 this year. Depreciation, the increase in net working capital, and capital spending were $315,000, $157,000, and $565,000, respectively. You expect that over the next five years, EBIT will grow at 15 percent per year, depreciation and capital spending will grow at 20 per year, and NWC will grow at 10 per year. The company has $26,500,000 in debt and 470,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.6 percent, indefinitely. The company's WACC is 9.75 percent and the tax rate is 24 percent. What is the price per share of the company's stock? Note: not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Share price
Derry Corporation is expected to have an EBIT of $3,400,000 next year. Increases in depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $155,000, and $195,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $17,500,000 in debt and 1,350,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.5 percent indefinitely. The company's WACC is 9.1 percent and the tax rate is 21 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.) Share price
Pearl Corp. is expected to have an EBIT of $2,000,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $85,000, and $125,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $10,500,000 in debt and 850,000 shares outstanding. At Year 5, you believe that the company's sales will be $14,850,000 and the appropriate price-sales ratio is 2.2. The company’s WACC is 8.5 percent and the tax rate is 22 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.)
You have looked at the current financial statements for J&R Homes, Company. The company has an EBIT of $3,130,000 this year. Depreciation, the increase in net working capital, and capital spending were $239,000, $104,000, and $485,000, respectively. You expect that over the next five years, EBIT will grow at 20 percent per year, depreciation and capital spending will grow at 25 percent per year, and NWC will grow at 15 percent per year. The company currently has $17.9 million in debt and 515,000 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 8.7 percent and the tax rate is 25 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.) Share price
You are valuing Soda City Inc. It has $129 million of debt, $79 million of cash, and 179 million shares outstanding. You estimate its cost of capital is 10.1%. You forecast that it will generate revenues of $723 million and $777 million over the next two years, after which it will grow at a stable rate in perpetuity. Projected operating profit margin is 31%, tax rate is 24%, reinvestment rate is 43%, and terminal EV/FCFF exit multiple at the end of year 2 is 11. What is your estimate of its share value? Round to one decimal place.

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