Use the Table for the Question(s)below

question 3

Multiple Choice

Use the table for the question(s) below. FCF Forecast ($ million)
Year 0 1 2 3 4
Sales 240 270 290 310 325.5
Growth versus Prior Year 12.5% 7.4% 6.9% 5.0%
EBIT (10% of Sales) 27.00 29.00 31.00 32.55
Less: Income Tax (37%) (9.99) 10.73 11.47 12.44
Less Increase in NWC (12% of Change in Sales 3.6 2.4 2.4 1.86
Free Cash Flow 13.41 15.87 17.13 18.65
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 11%, $50 million in cash, $80 million in debt, and 18 million shares outstanding, which of the following is the best estimate of Banco's stock price at the start of year 1?

• A)$6.52
• B)$11.74
• C)$13.04
• D)$23.48