Question: Abbey Taylor, CFA, has been directed to determine the value of Sundancis stock using the FCFE valuation model. Taylor believes that Sundancis FCFE will grow
Abbey Taylor, CFA, has been directed to determine the value of Sundancis stock using the FCFE valuation model. Taylor believes that Sundancis FCFE will grow at 12% for years 2020, 2021, 2022, 2023, and 2024, and 5% thereafter. Capital expenditures, depreciation, and working capital are all expected to increase proportionately with FCFE. Assume that the corporate tax rate is 30 percent. Using the data from Table 1, calculate the value of a share of Sundanci stock at the end of year 2019 based on the two-stage FCFE valuation model
| 2018 | 2019 | |
| Income Statement | ||
| Revenue | 624.000 | 746.000 |
| Tot Op Costs | 368.000 | 460.000 |
| Depreciation | 35.000 | 48.000 |
| EBIT | 221.000 | 238.000 |
| Interest | 10.000 | 9.000 |
| Taxes | 63.300 | 68.700 |
| Net Income | 147.700 | 160.300 |
| Dividends | 29.540 | 32.060 |
| EPS | 1.758 | 1.670 |
| Div PS | 0.352 | 0.334 |
| Com shares Outs | 84.000 | 96.000 |
| Balance Sheet | ||
| Current Assets | 246.000 | 384.000 |
| Net PPE | 629.000 | 748.000 |
| Total Assets | 875.000 | 1132.000 |
| Current Liabilities | 86.000 | 141.000 |
| Long-term Debt | 205.000 | 178.000 |
| Total Liabilities | 291.000 | 319.000 |
| Shareholder's equity | 584.000 | 813.000 |
| Total L&E | 875.000 | 1132.000 |
| Capital Expenditures | 56.000 | 68.000 |
| Other Info | ||
| Existing market Value of Debt | 185.000 | 169.000 |
| Selected Financial Information | ||
| Required Rate of ROE | 0.14 | |
| WACC | 0.102 | |
| Growth Rate of Industry | 0.13 | |
| Industry P/E ratio | 26 | |
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