CORP FIN (LL)+CONNECT+PROCTORIO+180
CORP FIN (LL)+CONNECT+PROCTORIO+180
12th Edition
ISBN: 9781266120343
Author: Ross
Publisher: MCG
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Chapter 9, Problem 28QAP

Stock Valuation and Cash Flows Full Boat Manufacturing has projected sales of $ 115 million next year. Costs are expected to be $ 67 million and net investment is expected to be $ 12 million. Each of these values is expected to grow at 14 percent the following year, with the growth rate declining by 2 percent per year until the growth rate reaches 6 percent, where it is expected to remain indefinitely. There are 5.5 million shares of stock outstanding and investors require a return of 13 percent on the company’s stock. The corporate tax rate is 21 percent.

a. What is your estimate of the current stock price?

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?

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CORP FIN (LL)+CONNECT+PROCTORIO+180

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