Your boss at Norris Valuations Inc. has asked you to determine a price target for the...
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Your boss at Norris Valuations Inc. has asked you to determine a price target for the shares of Troy Inc. A coworker was working on this valuation but got reassigned to a different project. He has provided you with different financial information as well as predictions of future performance for the company. Cash Accounts receivable Long-term debt (all 30 year annual Coupon Bonds issued in 2017) Accounts payable Common stock Notes payable Gross Fixed Assets Accruals Inventories Retained earnings Depreciation Rate (% of Gross FA) Total Asset Turnover Coupon Rate Market Rate for similar Bonds Tax rate EBITDA (% of sales) Dividend payout ratio Shares Outstanding MV of Preferred Stock S S S S S S 2018 86,000 $ 75,000 71,000 $ 66,000 65,000 $ 65,000 25,000 $20,000 69,476 S 65,000 14,000 $ 10,000 70,000 $ 50,000 25,000 $ 20,000 35,000 S 30,000 2017 S S S S 56,524 S 36,000 10% 10% 1.50 5.00% 6.00% 21.00% 14.00% 40.00% 10,000.00 $100,000.00 He estimated that the company's FCF would grow at 30% for the next 3 years, 15% for the following 3 years, and then at 5% thereafter. He estimated their WACC at 8%. He also came up with estimates for possible future dividend growth rates of 15% for the next 2 years, 10% the following 2 years, and then 4% thereafter. He estimated the stock's beta to be 1.2. The current market return is 10% and the risk free rate is 3%. The stock is currently selling for $24. You are tasked with estimating the price of the stock using both the Corporate Valuation Model and the Dividend Growth Model and making a recommendation on whether the company is under, over, or fairly priced. Your boss at Norris Valuations Inc. has asked you to determine a price target for the shares of Troy Inc. A coworker was working on this valuation but got reassigned to a different project. He has provided you with different financial information as well as predictions of future performance for the company. Cash Accounts receivable Long-term debt (all 30 year annual Coupon Bonds issued in 2017) Accounts payable Common stock Notes payable Gross Fixed Assets Accruals Inventories Retained earnings Depreciation Rate (% of Gross FA) Total Asset Turnover Coupon Rate Market Rate for similar Bonds Tax rate EBITDA (% of sales) Dividend payout ratio Shares Outstanding MV of Preferred Stock S S S S S S 2018 86,000 $ 75,000 71,000 $ 66,000 65,000 $ 65,000 25,000 $20,000 69,476 S 65,000 14,000 $ 10,000 70,000 $ 50,000 25,000 $ 20,000 35,000 S 30,000 2017 S S S S 56,524 S 36,000 10% 10% 1.50 5.00% 6.00% 21.00% 14.00% 40.00% 10,000.00 $100,000.00 He estimated that the company's FCF would grow at 30% for the next 3 years, 15% for the following 3 years, and then at 5% thereafter. He estimated their WACC at 8%. He also came up with estimates for possible future dividend growth rates of 15% for the next 2 years, 10% the following 2 years, and then 4% thereafter. He estimated the stock's beta to be 1.2. The current market return is 10% and the risk free rate is 3%. The stock is currently selling for $24. You are tasked with estimating the price of the stock using both the Corporate Valuation Model and the Dividend Growth Model and making a recommendation on whether the company is under, over, or fairly priced.
Expert Answer:
Answer rating: 100% (QA)
To estimate the price of the stock using the Corporate Valuation Model and the Dividend Growth Model we need to calculate the Free Cash Flow FCF and the required rate of return WACC 1 Calculate Free C... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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