Bullseye Corp. does not pay dividends. As an analyst for the company, you are trying to assess the stock price and realize you cannot use the dividend discount model because of the lack of dividend payment.

For the coming year, you estimate the following based upon past performance and current conditions:

EBIT of $500,000

Depreciation of $250,000

Tax rate of 21%

Change in NWC of $100,000

Capital Expenditures of $350,000

WACC=10.9%

Expected growth in free cash flows of:

o Year 2 and Year 3: 10%

o Year 4 and beyond: 5% The company also has the following:

Market Value of Debt of $3,000,000

Excess Cash of $250,000

100,000 shares outstanding

What is the estimate for Bullseyes stock price based upon the above information?

First, copy the Bullseye Solution to a new spreadsheet and name it Bullseye EBITDA. Instead of using a terminal value using growth in free cash flows, we will use an EBITDA multiple.

First, Calculate EBITDA for year 1 given the information in the first Bullseye question. In the solution, I will put this in row 13.

Second, assume EBITDA grows at the FCF growth rates indicated for the first Bullseye Model.

Third, find the Terminal Value in year 4 by using the forward- looking EBITDA multiple of 5.

Complete the model to find the PPS.

Copy the solution to #4 as a new spreadsheet and name it Breakeven. Use goal seek to find what EBITDA multiple would match the stock price found in question 3.