Fincher Manufacturing has projected sales of $145 million next year. Costs are expected to be $81 million
Question:
Fincher Manufacturing has projected sales of $145 million next year. Costs are expected to be $81 million and net investment is expected to be $15 million. Each of these values is expected to grow at 14 percent the following year, with the growth rate declining by 12 percent per year until the growth rate reaches 10 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 return on the company’s stock. The corporate tax rate is 40 percent.
a. What is your estimate of the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. Suppose instead that you estimate the terminal value of the company using a PE multiple. The industry PE multiple is 13. What is your new estimate of the company’s stock price?
Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen