Question: Bergs Ski Shop has received an environment study indicating that with weather patterns changing, Eugene and the Willamette Valley will become a summer hotspot in
Bergs Ski Shop has received an environment study indicating that with weather patterns changing, Eugene and the Willamette Valley will become a summer hotspot in the upcoming years. In response to this news, Bergs is looking to expand their specialty beyond snow equipment into summer supplies (jet skis, water skis, inner tubes, etc.) This will require an investment in inventory of $75k today (and remain constant in years 2-4 at 78.75 and then match the revenue growth rate), additional $30k annually in labor and other costs, while revenue will be $85.5k in year one, $90k year 2-4, and then increasing at 3% growth beginning in year 5. If Bergs WACC is 9% (we are assuming that this holds true to the new items since they are in the same recreation industry), tax rate of 21%, $150k in cash and $300k in debt, and 50k shares outstanding. What is your estimate of Bergs stock price?
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