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Calculate the price per share of common equity as of 12/31/2018. |
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Millions except price per share |
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2018/12/31 |
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Value of operations (V0) |
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+ Value of short-term investments |
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Total value of company |
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− Total value of all debt |
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− Value of preferred stock |
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Value of common equity |
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Number of shares outstanding |
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Price per share |
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Projected ratios and selected information for the current and projected years are shown below. Inputs Actual Projected Projected 2018/12/31 Projected Projected 12/31/21 12/31/19 12/31/20 12/31/22 Sales Growth Rate 15% 10% 6% 6% Costs/Sales 72% 72% 72% 72% 72% Depreciation/(Net PPE) 10% 10% 10% 10% 10% Cash/Sales 1% 1% 1% 1% 1% (Acct. Rec.)/Sales 10% 10% 10% 10% 10% Inventories/Sales 20% 20% 20% 20% 20% (Net PPE)/Sales (Acct. Pay.)/Sales 75% 75% 75% 75% 75% 2% 2% 2% 2% 2% Accruals/Sales 5% 5% 5% 5% 5% Tax rate 40% 40% 40% 40% 40% |Weighted average cost of capital (WACC) 10.5% 10.5% 10.5% 10.5% 10.5%
Homework Answers
Price per share = $ 99.46
Please see the table below. Please be guided by the second column titled “Linkage” to understand the mathematics. You can also understand the mathematics making use of [+] / [-] sign appearing in the first column. The last row highlighted in yellow is your answer. Figures in parenthesis, if any, mean negative values. All financials are in $ mn except number of shares which is in mn and Price per share which is $ / shares.
| Parameter | Linkage | Actual | Projected | Projected | Projected | Projected |
| Year | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 | |
| Year number, n | 1 | 2 | 3 | 4 | ||
| y-o-y growth in sales | gi | 15% | 10% | 6% | 6% | |
| Net Sales | A = Ai-1 x (1 + gi) | 800 | 920.00 | 1,012.00 | 1,072.72 | 1,137.08 |
| Costs | B = 72% x A | 662.40 | 728.64 | 772.36 | 818.70 | |
| Depreciation | C = 10% x I (below) | 69.00 | 75.90 | 80.45 | 85.28 | |
| Cash | D = 1% x A | 8.00 | 9.20 | 10.12 | 10.73 | 11.37 |
| Acc. Receivables | E = 10% x A | 80.00 | 92.00 | 101.20 | 107.27 | 113.71 |
| Inventory | F = 20% x A | 160.00 | 184.00 | 202.40 | 214.54 | 227.42 |
| Accounts Payable | G = 2% x A | 16.00 | 18.40 | 20.24 | 21.45 | 22.74 |
| Accruals | H = 5% x A | 40.00 | 46.00 | 50.60 | 53.64 | 56.85 |
| Net PPE | I = 75% x A | 600.00 | 690.00 | 759.00 | 804.54 | 852.81 |
| Working capital | J = (D + E + F) - (G + H) | 192.00 | 220.80 | 242.88 | 257.45 | 272.90 |
| Increase in working capital | K = Ji+1 - Ji | 28.80 | 22.08 | 14.57 | 15.45 | |
| Capital Expenditure | L = Ii + C - Ii-1 | 159.00 | 144.90 | 125.99 | 133.55 | |
| EBIT x (1 - Tax rate) | M = (A - B - C) x (1 - 40%) | 113.16 | 124.48 | 131.94 | 139.86 | |
| [+] Depreciation | C | 69.00 | 75.90 | 80.45 | 85.28 | |
| [-] Increase in working capital | K | 28.80 | 22.08 | 14.57 | 15.45 | |
| [-] Capital expenditure | L | 159.00 | 144.90 | 125.99 | 133.55 | |
| FCFF | N = M + C - K - L | (5.64) | 33.40 | 71.83 | 76.14 | |
| WACC | R | 10.5% | ||||
| Terminal growth rate | g | 6% | ||||
| Horizon value | O = N2022 x (1 + g) / (R - g) | 1,793.56 | ||||
| PV factor | PVF = (1 + R)-n | 0.90498 | 0.81898 | 0.74116 | 0.67073 | |
| PV of FCFF | PV = PVF x FCFF | (5.10) | 27.35 | 53.24 | 51.07 | |
| [+] PV of Horizon value | PVHV = O x PVF2022 | 1,203.00 | ||||
| Value of operations (V0) | V0 = PV + PVHV | 1,329.56 | ||||
| [+] Value of short-term investments | P | 20.00 | ||||
| Total value of company | Q = V0 + P | 1,349.56 | ||||
| [-] Total value of all debt | R (= Notes payables + long term bonds) | 340.00 | ||||
| [-] Value of preferred stock | S | 15.00 | ||||
| Value of common equity | T = Q - R - S | 994.56 | ||||
| Number of shares outstanding (mn) | U | 10.00 | ||||
| Price per share ($ / share) | V = T / U | 99.46 |
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Calculate the price per share of common equity as of
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Projected
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