Question: Please solve by hand not excel. 0) Olin Industries expect sales to grow at a rapid rate over the next three years, but settle to
Please solve by hand not excel.
0) Olin Industries expect sales to grow at a rapid rate over the next three years, but settle to an industry growth rate of 3% in year 3 . Suppose Olin has a weighted average cost of capital of 10%, $20 million in cash, \$10 million in debt, and 20 million shares outstanding. Assume that Olin's Sales in Years 0 to 3 is 250,300,350,400 million; EBIT is 10% of sales, the corporate tax rate is 37%, the depreciation rate equals new capital expenditures, and the increase net working capital is estimated at 12% of sales. If it is announced that the corporate tax rate will be reduced to 20% starting t=1, what will be the percent change in Olin's stock price at t=0 ? (Note: You may ignore the effect of the tax cut on Olin's WACC)
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