Problem 9-28 Stock Valuation and Cash Flows Full Boat Manufacturing has projected sales of $116.5 million next year. Costs are expected to be $68.2 million and net investment is expected to be $12.6 million. Each of these values is expected to grow at 9 percent the following year, with the growth rate declining by 1 percent per year until the growth rate reaches 5 percent, where it is expected to remain indefinitely. There are 5 million shares of stock outstanding and investors require a return of 12 percent return on the company's stock. The corporate tax rate is 23 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 11. 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.) a. Share price b. Share price 76.33
Problem 9-28 Stock Valuation and Cash Flows Full Boat Manufacturing has projected sales of $116.5 million next year. Costs are expected to be $68.2 million and net investment is expected to be $12.6 million. Each of these values is expected to grow at 9 percent the following year, with the growth rate declining by 1 percent per year until the growth rate reaches 5 percent, where it is expected to remain indefinitely. There are 5 million shares of stock outstanding and investors require a return of 12 percent return on the company's stock. The corporate tax rate is 23 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 11. 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.) a. Share price b. Share price 76.33
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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Stock or equities are generally sold and bought in the Stock Exchange or which is popularly known as the stock market. Stocks are issued in the Stock Exchange for the sole purpose of raising funds for the Corporation or the company itself. Now since an individual has purchased a portion of the Corporation or company, he or she may claim to be a part of the earnings or profit of the company.
Question
Transcribed Image Text:Problem 9-28 Stock Valuation and Cash Flows
Full Boat Manufacturing has projected sales of $116.5 million next year. Costs are
expected to be $68.2 million and net investment is expected to be $12.6 million. Each of
these values is expected to grow at 9 percent the following year, with the growth rate
declining by 1 percent per year until the growth rate reaches 5 percent, where it is
expected to remain indefinitely. There are 5 million shares of stock outstanding and
investors require a return of 12 percent return on the company's stock. The corporate tax
rate is 23 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 11. 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.)
a. Share price
b. Share price
$
76.33
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