10. BSky Products Limited had sales of US$385 million in 2015. As a financial analyst you expect it to grow by 8 % in 2016, but that this growth will slow by 2 % per annum to a long-run growth rate for the food industry of 3.5 % by 2021. On the basis of BSky’s past profitability and investment needs, EBIT is expected to be 8 % of sales, increases in net working capital requirements to be 9 % of any increase in sales, and capital expenditure to be equivalent to depreciation expenses. If BSky has US$50 million in cash, US$1.5 million in debt, and 11 million shares outstanding, a tax rate of 31 %, and WACC of 10 %.

(a) Compute the value of BSky’s share in early 2016.

(b) If BSky’s EBIT was given as 8 % of sales and its operating expenses can be reduced and EBIT increased to 9 % of sales, what would be the share’s value change?