Max Hype Inc. is expected to have an EBIT of $440,000.00 next year. Also next year,...

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Max Hype Inc. is expected to have an EBIT of $440,000.00 nextyear. Also next year, depreciation, the increase in net workingcapital, and capital spending are expected to be $37,500.00,$23,000.00, and $47,500.00, respectively. All of these variablesare expected to grow at 7 percent per year until the end of year 5.The company currently has $120,000.00 in debt and 450,000 sharesoutstanding. After Year 5, the adjusted cash flow from assets isexpected to grow at 4 percent indefinitely. The company's WACC is 9percent and its tax rate is 35 percent.
What is the price per share of the company's stock?
If the company's stock price is $14.01 on the stock market, isthe company overvalued, undervalued or correctly priced on thestock market?
Would you buy the company's stock? Why or why not?

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4.1 Ratings (537 Votes)

Answer a Expected FCF FCF1 EBIT 1 tax Depreciation Increase in NWC Capital Spending Expected FCF FCF1 440000 1 035 37500 23000 47500 Expected FCF FCF1 253000 Growth rate for See Answer

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Max Hype Inc. is expected to have an EBIT of $440,000.00 nextyear. Also next year, depreciation, the increase in net workingcapital, and capital spending are expected to be $37,500.00,$23,000.00, and $47,500.00, respectively. All of these variablesare expected to grow at 7 percent per year until the end of year 5.The company currently has $120,000.00 in debt and 450,000 sharesoutstanding. After Year 5, the adjusted cash flow from assets isexpected to grow at 4 percent indefinitely. The company's WACC is 9percent and its tax rate is 35 percent.What is the price per share of the company's stock?If the company's stock price is $14.01 on the stock market, isthe company overvalued, undervalued or correctly priced on thestock market?Would you buy the company's stock? Why or why not?