Eberhart Manufacturing has projected sales of $147.2 million next year. Costs are expected to be $82.1 million, and net investment is expected to be $16.1 million. Each of these values is expected to grow at 16 percent the following year, with the growth rate declining by 2 percent per year until the growth rate reaches 8 percent, where it is expected to remain indefinitely. There are 6.6 million shares of stock outstanding and investors require a return of 15 percent on the companyAc€?cs stock. The corporate tax rate is 40 percent.
a. What is your estimate of the current stock price?
b. Suppose instead that you estimate the terminal value of the company using a PE multiple. The industry PE multiple is 10. What is your new estimate of the company's stock price?