CORPORATE FINANCE--CONNECT ACCESS CARD
CORPORATE FINANCE--CONNECT ACCESS CARD
12th Edition
ISBN: 9781264331062
Author: Ross
Publisher: MCG CUSTOM
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Chapter 9, Problem 28QAP

Stock Valuation and Cash Flows Full Boat Manufacturing has projected sales of $ 115 million next year. Costs are expected to be $ 67 million and net investment is expected to be $ 12 million. Each of these values is expected to grow at 14 percent the following year, with the growth rate declining by 2 percent per year until the growth rate reaches 6 percent, where it is expected to remain indefinitely. There are 5.5 million shares of stock outstanding and investors require a return of 13 percent on the company’s stock. The corporate tax rate is 21 percent.

a. What is your estimate of the current stock price?

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?

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Stock Valuation and Cash Flows Full Boat Manufacturing has projected sales of $115 million next year. Costs are expected to be $67 million and net investment is expected to be $12 million. Each of these values is expected to grow at 14 percent the following year, with the growth rate declining by 2 percent per year until the growth rate reaches 6 per- cent, where it is expected to remain indefinitely. There are 5.5 million shares of stock outstanding and investors require a return of 13 percent on the company's stock. The corporate tax rate is 21 percent. a. What is your estimate of the current stock price? b. Suppose instead that you estimate the terminal value of the company using a PE mul- tiple. The industry PE multiple is 11. What is your new estimate of the company's stock price?
Full Boat Manufacturing has projected sales of $124.5 million next year. Costs are expected to be $74.4 million and net investment is expected to be $15.05 million. Each of these values is expected to grow at 14 percent the following year, with the growth rate declining by 2 percent per year until the growth rate reaches 6 percent, where it is expected to remain indefinitely. There are 6.6 million shares of stock outstanding and investors require a return of 13 percent return on the company’s stock. The corporate tax rate is 24 percent.    a. What is your estimate of the current stock price?   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?
The stock of Nogro Corporation is currently selling for $16 per share. Earnings per share in the coming year are expected to be $4 The company has a policy of paying out 40% of its earnings each year in dividends. The rest es retained and invested in projects that earn a 25% rate of return per year. This situation is expected to continue indefinitely Required: a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogro's investors require? (Do not round intermediate calculations.) Rate of retur Return to question Answer is complete and correct. 250% b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing was reinvested?

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CORPORATE FINANCE--CONNECT ACCESS CARD

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