Ashely Corporation has 80 million outstanding equity shares and the following projected financial information for the next four years. The tax rate is 25%. Ashely’s cost of capital is 13%. Assume Ashely is fully financed with equity. Year 1 2 3 4 Earnings Forecast ($millions) 1 Sales 474.28 520.31 571.88 728.99 2 Cost of Goods Sold 269.53 308.19 335.68 490.25 3 Selling, General & Admin. 102.05 108.25 105.24 135.76 4 Depreciation 12.00 15.00 12.50 15.50 5 Net Income 68.03 66.65 88.85 65.61 Capital Requirements ($millions) 6 Capital Expenditures 8.80 11.50 10.60 12.50 7 Increase in Net Working Capital 6.80 7.20 8.25 9.15 Ashely’s CFO wants to use P/E ratio to value the stock’s terminal value in year 4. The CFO forecasts the industry P/E ratio in year 4 is 20. Based on the forecasted P/E ratio, what is the stock price of Ashely today (year 0)? A. $6.98 B. $12.56 C. $13.13 D. $2.50
Ashely Corporation has 80 million outstanding equity shares and the following projected financial information for the next four years. The tax rate is 25%. Ashely’s cost of capital is 13%. Assume Ashely is fully financed with equity.
|
|
|
Year |
1 |
2 |
3 |
4 |
|
Earnings |
|
|
|
|
|
|
|
1 |
Sales |
|
474.28 |
520.31 |
571.88 |
728.99 |
|
2 |
Cost of Goods Sold |
269.53 |
308.19 |
335.68 |
490.25 |
|
|
3 |
Selling, General & Admin. |
102.05 |
108.25 |
105.24 |
135.76 |
|
|
4 |
Depreciation |
|
12.00 |
15.00 |
12.50 |
15.50 |
|
5 |
Net Income |
|
68.03 |
66.65 |
88.85 |
65.61 |
|
Capital Requirements ($millions) |
|
|
||||
|
6 |
Capital Expenditures |
8.80 |
11.50 |
10.60 |
12.50 |
|
|
7 |
Increase in Net Working Capital |
6.80 |
7.20 |
8.25 |
9.15 |
Ashely’s CFO wants to use P/E ratio to value the stock’s terminal value in year 4. The CFO forecasts the industry P/E ratio in year 4 is 20. Based on the forecasted P/E ratio, what is the stock price of Ashely today (year 0)?
| A. |
$6.98 |
|
| B. |
$12.56 |
|
| C. |
$13.13 |
|
| D. |
$2.50 |
Step by step
Solved in 2 steps with 2 images
