Derry Corporation is expected to have an EBIT of $2,600,000 next year. Increases in depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $115,000, and $155,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $13,500,000 in debt and 1,150,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3 percent indefinitely. The company's WACC is 9.2 percent and the tax rate is 23 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Share price $ 41.86 X

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Derry Corporation is projected to have an EBIT of $2,600,000 next year. The increases in depreciation, net working capital, and capital spending are expected to be $160,000, $115,000, and $155,000, respectively, with all growing at 16% per year for four years. The company has $13,500,000 in debt and 1,150,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3% indefinitely. The company's WACC is 9.2%, and the tax rate is 23%. The task is to determine the stock's price per share, rounding the answer to two decimal places. Note: Intermediate calculations should not be rounded.

The provided solution indicates a share price of $41.86, but it is marked as not entirely correct.
Transcribed Image Text:Derry Corporation is projected to have an EBIT of $2,600,000 next year. The increases in depreciation, net working capital, and capital spending are expected to be $160,000, $115,000, and $155,000, respectively, with all growing at 16% per year for four years. The company has $13,500,000 in debt and 1,150,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3% indefinitely. The company's WACC is 9.2%, and the tax rate is 23%. The task is to determine the stock's price per share, rounding the answer to two decimal places. Note: Intermediate calculations should not be rounded. The provided solution indicates a share price of $41.86, but it is marked as not entirely correct.
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