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Question: In the previous problem, instead of a

In the previous problem, instead of a perpetual growth rate in adjusted cash flow from assets, you decide to calculate the terminal value of the company with the price-sales ratio. You believe that Year 5 sales will be $23.7 million and the appropriate price-sales ratio is 2.9. What is your new estimate of the current share price?

Problem 24:
Derry Corp. is expected to have an EBIT of $2.1 million next year. Increases in depreciation, the increase in net working capital, and capital spending are expected to be $165,000, $80,000, and $120,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $10.4 million in debt and 750,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3 percent indefinitely. The company’s WACC is 8.5 percent and the tax rate is 21 percent. What is the price per share of the company’s stock?


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