Problem $9-28$ Stock Valuation and Cash Flows

Full Boat Manufacturing has projected sales of $$116\mathrm{.}5$ million next year. Costs are expected to be $$68\mathrm{.}2$ million and net investment is expected to be $$12\mathrm{.}6$ million. Each of these values is expected to grow at $9$ percent the following year, with the growth rate declining by $1$ percent per year until the growth rate reaches $5$ percent, where it is expected to remain indefinitely. There are $5$ million shares of stock outstanding and investors require a return of $12$ percent return on the company's stock. The corporate tax rate is $23$ percent.

a$.$ What is your estimate of the current stock price? $($Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

b$.$ Suppose instead that you estimate the terminal value of the company using a PE multiple. The industry PE multiple is $11.$ What is your new estimate of the company's stock price? $($Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

$\backslash$table$[[$a$.$ Share price,$$,76\mathrm{.}33],[$b$.$ Share price,,$]]$