Consider the valuation of Kenneth Cole Productions in Example 9.7. a. Suppose you believe KCP's initial revenue
Question:
Consider the valuation of Kenneth Cole Productions in Example 9.7.
a. Suppose you believe KCP's initial revenue growth rate will be between 4% and 11% (with growth slowing in equal steps to 4% by year 2011). What range of share prices for KCP is consistent with these forecasts?
b. Suppose you believe KCP's EBIT margin will be between 7% and 10% of sales. What range of share prices for KCP is consistent with these forecasts (keeping KCP's initial revenue growth at 9%)?
c. Suppose you believe KCP's weighted average cost of capital is between 10% and 12%. What range of share prices for KCP is consistent with these forecasts (keeping KCP's initial revenue growth and EBIT margin at 9%)?
d. What range of share prices is consistent if you vary the estimates as in parts (a), (b), and (c) simultaneously?
Cost Of CapitalCost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
Step by Step Answer:
a If Initial Revenue Growth Rate can vary between 4 and 11 the stock price can vary between 2286 and 2570 b If EBIT Margin can vary between 7 and 10 t...View the full answer
