In the previous problem, instead of a perpetual growth rate in adjusted cash flow from assets, you

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In the previous problem, instead of a perpetual growth rate in adjusted cash flow from assets, you decide to calculate the terminal value of the company with the price-sales ratio. You believe that Year 5 sales will be $16.9 million and the appropriate price-sales ratio is 2.9. What is your new estimate of the current share price?

Data from previous problem

Pearl Corp. is expected to have an EBIT of $1.8 million next year. Depreciation, the increase in net working capital, and capital spending are expected to be $155,000, $75,000, and $115,000, respectively.

All are expected to grow at 18 percent per year for four years. The company currently has $9.5 million in debt and 750,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3 percent indefinitely. The company’s WACC is 8.5 percent and the tax rate is 21 percent. What is the price per share of the company’s stock?

Cash Flow From Assets
Cash flow from assets is the aggregate total of all cash flows related to the assets of a business. This information is used to determine the net amount of cash being spun off by or used in the operations of a business. The concept is comprised of...

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The CFA for each of the first five years will be the same as the previous prob...View the full answer

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