Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

2. You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $3,070,000 this year. Depreciation, the increase

image text in transcribed

2. You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $3,070,000 this year. Depreciation, the increase in net working capital, and capital spending were $236,000, $101,000, and $470,000, respectively. You expect that over the next five years, EBIT will grow at 17 percent per year, depreciation and capital spending will grow at 22 per year, and NWC will grow at 12 per year. The company currently has $17,300,000 in debt and 355,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.5 percent indefinitely. The company's WACC is 8.9 percent and the tax rate is 40 percent What is the price per share of the company's stock? Share price $ 8. Hankins, Inc., is considering a project that will result in initial aftertax cash savings of $5.8 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt-equity ratio of .57, a cost of equity of 13.2 percent, and an aftertax cost of debt of 5.1 percent The cost-saving proposal is somewhat riskier than the usual project the firm undertakes, management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects Calculate the WACC WACC What is the maximum cost the company would be willing to pay for this project? Present value $ 0 10. Ward Corp. is expected to have an EBIT of $2,300,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $173,000, $101,000, and $123,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $17,000,000 in debt and 830,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.0 percent indefinitely. The company's WACC is 8.8 percent and the tax rate is 40 percent What is the price per share of the company's stocK? Share price $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Financial Management

Authors: Eugene F. Brigham, Phillip R. Daves

7th Edition

0030333288, 9780030333286

More Books

Students also viewed these Finance questions

Question

What is the sustainable growth rate? Why is it important?

Answered: 1 week ago