Reference no: EM132524252
We find the following information on NPNG (No-Pain-No-Gain) Inc.:
EBIT = $2,000,000
Depreciation = $250,000
Change in net working capital = $100,000
Net capital spending = $300,000
These numbers are projected to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future:
EBIT: 20%
Depreciation: 10%
Change in net working capital: 15%
Net capital spending: 10%
The firm's tax rate is 35%, and it has 1,000,000 outstanding shares and $8,000,000 in debt. We have estimated the WACC to be 15%.
a. Calculate the EBIT, Depreciation, Changes in NWC, and net capital spending for the next four years. (8 marks)
b. Calculate the CFA* for each of the next four years, using the formula
CFA* = EBIT(1 - T) + Depr - ΔNWC - NCS.
c. Calculate the firm's share price at time 0.