The forecast for Discomfort’s free cash flows for next year is provided in the table. Assume that free cash flow is paid at the end of each year and we are at the beginning of a year. Last year’s values are for the year end yesterday. Analysts expect Discomfort’s cash flow to remain constant at next year’s level in perpetuity. The WACC for Discomfort is 8%. What is the fair price for Discomfort’s shares today? Selected Financial Information Discomfort Inc. ($000s) Last Year Next Year Sales 743,203 934,978 Depreciation 13,543 20,401 EBIT 90,453 119,787 Tax Rate, T 34.8% 34.8% Net Working Capital -64200 -61662 Net Property and Equipment 43,850 79,356 Long-Term Debt 14,216 15,263 Shares Outstanding 20,000 20,000 Round your answer to the nearest cent.
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
The
|
Selected Financial Information Discomfort Inc. ($000s) |
||
|
Last Year |
Next Year |
|
|
Sales |
743,203 |
934,978 |
|
|
13,543 |
20,401 |
|
EBIT |
90,453 |
119,787 |
|
Tax Rate, T |
34.8% |
34.8% |
|
Net Working Capital |
-64200 |
-61662 |
|
Net Property and Equipment |
43,850 |
79,356 |
|
Long-Term Debt |
14,216 |
15,263 |
|
Shares Outstanding |
20,000 |
20,000 |
Round your answer to the nearest cent.
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