1) Terps Cookies has been experiencing dramatic growth. It had sales of $15,000 in 2014 and...

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1) Terps Cookies has been experiencing dramatic growth. It had sales of $15,000 in 2014 and $18,000 in 2015. Sales are projected to grow at a rate of 8% in 2016 but then slow to 5% after 4 years. Terps Cookies has impressive margins, which results in an EBIT of 13% of sales, and increases in net working capital requirements equal to 10% of any increase in sales. Capital expenditures are equal to any depreciation. Assuming a corporate tax rate of 35% and a weighted average cost of capital of 10%, what is the price per share today (2015) if Terps Cookies has excess cash of $5,000 and no debt, and 400 shares outstanding? A) 65.78 B) 95.78 C) 31.56 D) 30.56 E) 53.77 Answer: B Explanation: A) B) WACC=10% Tax=35% 2015 0 18000 sales growth ebit(13%) 0.13 Less Tax 0.35 NWC 0.1 FCF PV of FCF 0.08 2527.2 884.52 144 2016 1 19440 20995.2 2017 2 2018 2019 2020 5 3 4 22674.82 24488.8 25713.24 0.05 3342.721 1031.704 1114.24 1169.952 167.9616 181.3985 122.444 1618.574 1748.06 1887.905 2050.325 1337.665 1313.344 1289.465 28007.99 1498.68 1362.436 0.08 0.08 0.08 2729.376 2947.726 3183.544 955.2816 155.52 1) Terps Cookies has been experiencing dramatic growth. It had sales of $15,000 in 2014 and $18,000 in 2015. Sales are projected to grow at a rate of 8% in 2016 but then slow to 5% after 4 years. Terps Cookies has impressive margins, which results in an EBIT of 13% of sales, and increases in net working capital requirements equal to 10% of any increase in sales. Capital expenditures are equal to any depreciation. Assuming a corporate tax rate of 35% and a weighted average cost of capital of 10%, what is the price per share today (2015) if Terps Cookies has excess cash of $5,000 and no debt, and 400 shares outstanding? A) 65.78 B) 95.78 C) 31.56 D) 30.56 E) 53.77 Answer: B Explanation: A) B) WACC=10% Tax=35% 2015 0 18000 sales growth ebit(13%) 0.13 Less Tax 0.35 NWC 0.1 FCF PV of FCF 0.08 2527.2 884.52 144 2016 1 19440 20995.2 2017 2 2018 2019 2020 5 3 4 22674.82 24488.8 25713.24 0.05 3342.721 1031.704 1114.24 1169.952 167.9616 181.3985 122.444 1618.574 1748.06 1887.905 2050.325 1337.665 1313.344 1289.465 28007.99 1498.68 1362.436 0.08 0.08 0.08 2729.376 2947.726 3183.544 955.2816 155.52

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To calculate the price per share today 2015 we need to find the present value of all future cas... View the full answer