Use the Table for the Question(s) Below -Banco Industries Expect Sales to Grow at a Rapid Rate

question 9

Multiple Choice

Use the table for the question(s) below.
$\begin{array}{l}\text { FCF Forecast (\$ million) }\\\begin{array} { l l l l l l } \text { Year } & \mathbf { 0 } & \mathbf { 1 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } \\\text { Sales } & 240 & 270 & 290 & 310 & 325.5 \\\text { Growth versus Prior Year } & & 12.5 \% & 7.4 \% & 6.9 \% & 5.0 \% \\\text { EBIT (10\% of Sales) } & &27.00 & 29.00 & 31.00 & 32.55 \\\text { Less: Income Tax (37\%) } && ( 9.99 ) & 10.73 & 11.47 & 12.44 \\\text { Less: Inc. in NWC (12\% of Change in Sales) } && 3.6 & 2.4 & 2.4 & 1.86 \\\hline \text { Free Cash Flow } && 13.41 & 15.87 & 17.13 & 18.65\end{array}\end{array}$
-Banco Industries expect sales to grow at a rapid rate over the next three years, but settle to an industry growth rate of 5% in year 4. The spreadsheet above shows a simplified pro forma for Banco Industries. If Banco Industries has a weighted average cost of capital of 12%, $50 million in cash, $60 million in debt, and 18 million shares outstanding, which of the following is the best estimate of Banco's share price at the start of year 1?

• A) $11.12
• B) $6.03
• C) $12.03
• D) $20.11

---

Definitions:

Mobile App

A software application developed specifically for use on small, wireless computing devices, such as smartphones and tablets, aside from computers.

Game

An activity or structured form of play, often undertaken for entertainment or fun, and sometimes used as an educational tool.

Digital Marketing Plan

A strategic outline that guides the use of online platforms for marketing activities aimed at achieving specific business goals.

Keds Sneakers

A brand of canvas shoes with rubber soles, known for their simple design and comfort, making them a casual footwear choice since their introduction in the early 20th century.