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Intrinsic Price Per Share and Current Market Price

You have been given the following projections for Moon Corporation for the coming year.

Sales = 10,000 units
Sales price per unit = $10
Variable cost per unit = $5
Fixed costs = $10,000
Bonds outstanding = $15,000
rd on outstanding bonds = 8%
Tax rate = 40%
Shares of common stock outstanding = 10,000 shares
Beta = 1.4
rRF = 5%
rM = 9%
Dividend payout ratio = 60%
Growth rate = 8%

A. Calculate the current intrinsic price per share for Moon Corporation.
B. If the current market price of Moon Corporation is $45, what would be your recommendation to a potential investor?

1. I would like it if you could show me step by step how to do the problem
2. Go into very specific detail for Part B. I think it would be overvalued but I am not sure. I would like to know whether this is over or undervalued. What would be a good recommendation to the investor?

Solution Summary

This solution provides calculation (in Excel) for intrinsic price per share and current market price.