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The current (year 0) financial statements for CanoeBrook Builders shows the following information: EBIT = $2.95 mil. Depreciation, the increase in net working capital and capital spending were $235,000, $105,000 and $475,000 respectively. You expect that over the next five years EBIT will grow 15% per Year, depreciation and capital spending will grow at 20% per year and NWC will grow at 10% per year. The company has $19.5 mil in debt and 400,000 shares outstanding. After 5 years, the firm is expected to grow at 3.5% per year in perpetuity. The company’s WACC is 9.25% and the tax rate = 35%. What is the current share price? Hint: use excel to first calculate the cash flows during years 1thru 5.
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In the given assignment, we were required to solve the practical problem based on the data given in the question. We were required to determine the share price of based on the cost of capital and earnings given in the question.
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