Fulsom manufacturing is an all equity company with projected sales of $116 Million next year. Costs are expected to be $63.2 million, depreciation is expected to be $6.5 million, and net investment is expected to be $12.6 million. Each of these values is expected to grow at 9% the following year. After that, the growth rate is expected to be 3% in perpetuity. There are 5.6 million shares of stock outstanding and investors require a rate of return of 10% return on the company's stock. The corporate tax rate is 21%.

A) what are the total cash flows in year 1?

B) What are the total cash flows in year 2?

C) What is the terminal value in year 2?

D) What is the stock price?

E) Suppose instead that you estimate the terminal value of the company using a PE multiple. The industry PE multiple is 10. What is the terminal value in year 2 using this method?

Answer rating: 100% (QA)

The Year1 and Year2 cash flows Terminal valueOCF3cost of equi... View the full answer