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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 4. Earnings Forecast ($millions) 1 Sales 2 Cost of Goods Sold 571.88 335.68 105.24 12.50 474.28 520.31 728.99 269.53 308.19 490.25 108.25 135.76 3 Selling, General & Admin. 4 Depreciation 5 Net Income Capital Requirements ($millions) 6 Capital Expenditures 7 Increase in Net Working Capital 102.05 15.50 15.00 66.65 12,00 68.03 88.85 65.61 10.60 12.50 8.80 6.80 11.50 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)? O A. $6.98 O B. $12.56 OC. $13.13 O 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 4. Earnings Forecast ($millions) 1 Sales 2 Cost of Goods Sold 571.88 335.68 105.24 12.50 474.28 520.31 728.99 269.53 308.19 490.25 108.25 135.76 3 Selling, General & Admin. 4 Depreciation 5 Net Income Capital Requirements ($millions) 6 Capital Expenditures 7 Increase in Net Working Capital 102.05 15.50 15.00 66.65 12,00 68.03 88.85 65.61 10.60 12.50 8.80 6.80 11.50 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)? O A. $6.98 O B. $12.56 OC. $13.13 O D. $2.50

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter26: Mergers And Corporate Control
Section: Chapter Questions
Problem 1P: Hasting Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares...
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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 ($millions) 1 Sales 474.28 520.31 571.88 728.99 269.53 308.19 335.68 490.25 2 Cost of Goods Sold 102.05 108.25 105.24 135.76 3 Selling, General & Admin. 4 Depreciation 5 Net Income 12.00 15.00 12,50 15.50 68.03 66.65 88.85 65.61 Capital Requirements ($millions) 6 Capital Expenditures 7 Increase in Net Working Capital 8.80 11.50 10.60 12.50 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)? O A. $6.98 O B. $12.56 O C. $13.13 O D. $2.50
Transcribed Image Text:Ashely Corporation has 80 million outstanding equity shares and the following projected financial information for the next four years. The tax rate is 25%. Ashely's cost of capital is 13%. Assume Ashely is fully financed with equity. Year 1 2 3 4 Earnings Forecast ($millions) 1 Sales 474.28 520.31 571.88 728.99 269.53 308.19 335.68 490.25 2 Cost of Goods Sold 102.05 108.25 105.24 135.76 3 Selling, General & Admin. 4 Depreciation 5 Net Income 12.00 15.00 12,50 15.50 68.03 66.65 88.85 65.61 Capital Requirements ($millions) 6 Capital Expenditures 7 Increase in Net Working Capital 8.80 11.50 10.60 12.50 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)? O A. $6.98 O B. $12.56 O C. $13.13 O D. $2.50
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