1. Help Jenny to forecast dividend payments for Reeby Sports and to estimate the value of the stock. You do not need to provide a single figure. For example, you may wish to calculate two figures, one on the assumption that the opportunity for further profitable investment disappears after six years and another assuming it disappears after eight years.

2. How much of your estimate of the value of Reeby's stock come from the present value of growth opportunities?

Ten years ago, in 2007, George Reeby founded small mail-order company selling high-quality sports equipment. Since those early days Reeby Sports has grown steadily and been consistently profitable. The company has issued 2 million shares, all of which are owned by George Reeby and his five children.

For some months George has been wondering whether the time has come to take the company public. This would allow him to cash in on part of his investment and would make it easier for the firm to raise capital should it wish to expand in the future.

But how much are the shares worth? George's first instinct is to look at the firm's balance sheet, which shows that the book value of the equity is $26.34 million, or $13.17 per share. A share price of $13.17 would put the stock on a P/E ratio of 6.6. That is quite a bit lower than the 13.1 P/E ratio of Reeby's larger rival, Molly Sports.

George suspects that book value is not necessarily a good guide to a share's market value. He thinks of his daughter Jenny, who works in an investment bank. She would undoubtedly know what the shares are worth. He decides to phone her after she finishes work that evening at 9 o'clock or before she starts the next day at 6.00 a.m.

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E Earnings per share ($) -2.10-0.70 0.23 0.8 .10 1.30 1.52 164 Dividend ($) Book value per share ($9.80 7.70 7.00 7.61 8.51 9.51 10.73 11.77 ROE (%) 2.03 0.00 0.00 0.00 0.20 0.20 0.30 030 0.60 0.60 080 14.40 2.00 13.17 27.10-7.1 3.0 116 14.5 15.3 16.0 15317.0 15.4