A maker of pet toys, has $40 million in outstanding debt, 3.5 million shares outstanding. Sales for
Question:
A maker of pet toys, has $40 million in outstanding debt, 3.5 million shares outstanding. Sales for the current year (Year 1) are expected to be $30 million, and are expected to grow at 15% per year for the next four (4) years. After that, sales are expected to grow at 2% per year indefinitely (or forever). EBIT this year will be $10 million. EBIT, depreciation, capital spending, and the change in net working capital will grow at the same rate as sales. The appropriate weighted average cost of capital for the company is 8% and the tax rate is 21%.
a) Based on this information, what terminal value would you assign to this firm (in Year 5)?
b) Based on this information, what value would you assign to this firm today?
Advanced Financial Accounting
ISBN: 978-0137030385
6th edition
Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay