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NewPoint Company had sales of $630 million in 2013. The Company expects its sales to grow at 20% rate in 2014, but that this growth rate will slow by 4% per year to a long-run growth rate for the industry of 4% by 2018.
NewPoint has been profitable and it expects its investment its EBIT to be 10% of sales, increases in net working capital requirements to be 8% of any increase in sales, and capital expenditures to equal depreciation expenses.
NewPoint has $125 million in cash, $100 million in debt with interest rate of 8% and the unlevered cost of equity of 14%. The company stock price is $20 per share and has 25 million shares outstanding with a tax rate of 35%.
1. What is the weighted average cost of capital of the company?
2. What is your estimate of the value of NewPoint’s stock in early 2014?
3. What is the value of equity and price per share?
4. Use adjusted present value (APV) to estimate price per share.
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