A small high growth company has just reported 2022 earnings - a loss of $19.93 Million, on
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- A small high growth company has just reported 2022 earnings - a loss of $19.93 Million, on revenues of 75 million, as expected.
- ERP is 5.5% and the Risk-Free rate is 5%. Tax is 26%
- The company is initially rated B
- Last year they raised $250 Million in debt via a semi-annual bond maturing 30 June 2032. They are not expected to raise any more debt for at least 3 years.
- They also raised additional equity by issuing 10 million Ordinary shares at $50. The shares currently trade at $66.66, and there are a total of 15 million Ordinary shares outstanding.
- Beta = 2.25
- Revenue growth is expected to decline from 100% in 2023 to 20% in 2027, It will stay constant at that rate for 5 years.
- 2022 EBIT Margin was - 10%. It is expected to grow to +40% over the next 5 years, then grow to 45% by 2032.
- Initially depreciation is expected to be 5% of Capex, Net working capital adjustment will be 12.5% of sales, and Capex will be 40% of sales. After 5 years, and for the next 5 years CAPEX is expected to remain constant in dollar terms. Over the same period, depreciations will rise to 35% of CAPEX, and Net working capital adjustment will fall by 0.5% a year
- The company does not currently pay a dividend.
- Refinancing of the debt lowers the firm's beta to 1.25 and changes the firm's capital structure.
According to Damodaran, what is the appropriate value of g for the Gordon Growth Model?
Related Book For
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates
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