Question

What is the Price per share of Global Harmonic Control Systems (GHCS) based on the following information?

- Revenues for the next year are forecasted to be $500 million.
- Revenues are expected to grow at 10 percent per year for the two years after that, 8 percent per year for the next two years, and 6 percent per year after that.
- Expenses, including depreciation, are 60 percent of revenues.
- Net investment, including net working capital and capital spending less depreciation, is 10 percent of revenues.
- All costs are proportional to revenues, so net cash flow grows at the same rate as revenues.
- GHCS is an all-equity firm with 12 million shares outstanding.
- A discount rate of 16 percent is appropriate for a firm of GHCS’s risk.
- The tax rate is 40%.
Now, you can proceed with the calculations to find the Price per share of GHCS.

Answer 1

The price per share of GHCS, calculate the net cash flow each year, find the present value of each year's net cash flow, add up the present values, and divide by the number of shares.

Step-by-step explanation:

To calculate the price per share of Global Harmonic Control Systems (GHCS), we need to find the present value of the expected cash flows and divide it by the number of shares.

Here are the steps:

1. Calculate the net cash flow each year by multiplying the revenues by (1 - expenses - net investment).
2. Calculate the present value of each year's net cash flow using the discount rate of 16%.
3. Add up the present values of all the net cash flows to get the total present value of the expected cash flows.
4. Divide the total present value by the number of shares to get the price per share.