Adequate information: Market value of debt MV d = $115,000,000 Cost of debt K d = 6% Market value of equity MV e = $360,000,000 Cost of equity K e = 11% Debt value V D = $45,000,000 Projected EBIT in one year EBIT Proj = $17,300,000 EBIT growth rate for first 5 years g = 10% EBIT perpetuity growth rate G = 3% Net working capital percentage for EBIT WC r = 9% Capital spending percentage for EBIT CS r = 15% Depreciation for EBIT D r = 8% Shares outstanding SO = 1,950,000 Tax rate t = 21% To compute: Stock price for the company J. Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

Question

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Answer 1

Question

Chapter 13, Problem 21QAP

a

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

To compute: Stock price for the company J.

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

b

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

EV/EBITDA = 9

To compute: Stock price

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

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Answer 2

Question

Chapter 13, Problem 21QAP

a

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

To compute: Stock price for the company J.

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

b

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

EV/EBITDA = 9

To compute: Stock price

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

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Answer 3

Question

Chapter 13, Problem 21QAP

a

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

To compute: Stock price for the company J.

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

b

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

EV/EBITDA = 9

To compute: Stock price

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

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Answer 4

Question

Chapter 13, Problem 21QAP

a

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

To compute: Stock price for the company J.

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

b

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

EV/EBITDA = 9

To compute: Stock price

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

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Answer 5

Chapter 13, Problem 21QAP

a

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

To compute: Stock price for the company J.

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

b

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

EV/EBITDA = 9

To compute: Stock price

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

Answer 6

Chapter 13, Problem 21QAP

a

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

To compute: Stock price for the company J.

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

Answer 7

Chapter 13, Problem 21QAP

a

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

To compute: Stock price for the company J.

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

Answer 8

b

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

EV/EBITDA = 9

To compute: Stock price

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

Answer 9

b

Summary Introduction

Adequate information:

Market value of debt MVd = $115,000,000

Cost of debt Kd = 6%

Market value of equity MVe = $360,000,000

Cost of equity Ke = 11%

Debt value VD = $45,000,000

Projected EBIT in one year EBITProj = $17,300,000

EBIT growth rate for first 5 years g = 10%

EBIT perpetuity growth rate G = 3%

Net working capital percentage for EBIT WCr = 9%

Capital spending percentage for EBIT CSr = 15%

Depreciation for EBIT Dr = 8%

Shares outstanding SO = 1,950,000

Tax rate t = 21%

EV/EBITDA = 9

To compute: Stock price

Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.

Answer 10

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Answer 11

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Answer 12

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Answer 13

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Solution Summary: The author explains that the stock price is based on factors such as total debt, enterprise value, shares outstanding, etc.

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Chapter 13 Solutions