expected to be $67.2 million, and net investment is expected to be $12.6 million. Each of these values is expected to grow at 10 percent the following year, with the growth rate declining by 1 percent per year until the growth rate reaches 6 percent, where it is expected to remain indefinitely. There are 4.9 million shares of stock outstanding and investors require a return of 11 percent on the company’s stock. The corporate tax rate i
expected to be $67.2 million, and net investment is expected to be $12.6 million. Each of these values is expected to grow at 10 percent the following year, with the growth rate declining by 1 percent per year until the growth rate reaches 6 percent, where it is expected to remain indefinitely. There are 4.9 million shares of stock outstanding and investors require a return of 11 percent on the company’s stock. The corporate tax rate i
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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Problem 6-32 Stock Valuation and Cash Flows
| Anya Manufacturing has projected sales of $116 million next year. Costs are expected to be $67.2 million, and net investment is expected to be $12.6 million. Each of these values is expected to grow at 10 percent the following year, with the growth rate declining by 1 percent per year until the growth rate reaches 6 percent, where it is expected to remain indefinitely. There are 4.9 million shares of stock outstanding and investors require a return of 11 percent on the company’s stock. The corporate tax rate is 22 percent. | |
| a. | What is your estimate of the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | Suppose instead that you estimate the terminal value of the company using a PE multiple. The industry PE multiple is 13. What is your new estimate of the company’s stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
|
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