What is the fair price for each share of company stock

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Problem 1: If we start BS in 2021, BS will have no sales in 2021. BS is expected to have sales of $10 million in 2022 and the sales will grow at the rate of 30% in 2023; 60% in 2024; 20% in 2025; and 3% from 2026 on forever. We expect that net income will be 48% of sales (based on the estimation that EBIT to be 60% of sales and we have to pay a corporate tax rate of 20%). We expect that increases in net working capital requirements to be 5% of any increase in sales, capital expenditures to be 9% of sales, and depreciation expenses to be 6% of sales. The weighted average cost of capital is estimated to be 15%. To start the company, we need to invest $30 million at the end of 2021. Should we start the new company? If we are planning for an IPO at the beginning of 2022 to sell all the equity for 10 million shares, what is the fair price for each share of our company stock?

Reference no: EM132930039

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