Answer the questions usng the discount cash flow model when possible and I need to also explain the assumptions/projected values

104 Part One Value MINI-CASE .. Reeby Sports Ten years ago, in 21T, Geoee Rechy kounded a sma-onder company slling high-quality sparts equipment. Since those early days Recby Sports has grown stcadily and been consistently peotitule. The company hasissued 2 mallion shares, all of ahich are ed lby Genge Reeby and his live children er seme manths Geae has been wondering whether the time has come to take the company lxdik:.This would allow him to cash inan part of his nveineill ald wold milke it easier for the firm to raie capital should i wish to expand in the furure But how much are the shares worth? George's first instinct is ta lock a the firms balance sheet which shows that the booke of the equity is S26.34 mllion, or $13.17 pur share. A share price af SI317 would put the sockon a P ratio && Th is quite a bit lawer than the 131 E rutio of Reeby's larger rival, Melly Sports George supects that heok vale is not necessarily a good guide to a shares market alue. He thinks af his daughter Jenny. wh works in an inestment hank. She anuld undnubtedly know at the shares are wurth.Hedcics o phone ber aterse inises work thu evening al9 oclock or befiore shbe starts the next day at 6.00 am. Belophoning, (ie.rgel"ls' krens ometrsk dalk 'n the compeity's profitability After reco- eting Irwn its carly krsses, the ampeny has ca' "ed a rcturn th is highGY than itselimpsted los cost of capital Gcorge is fairly contident that the compny could comime a grow irly steadily ar the next six to eight years In fact he feels that the companys growth has hoen somewhat hekl bak in the last few years by the demands from tw of the chiklren for the company to make large dividend pay ments. Perhaps, if thecompany went publice, it oud hold hack on dividends and plow mane monyk o the business There are some douds en the harizon. Campetition is inerening and only tha marning Molly Sperts announced plans ta form a mail-onter division Ceorge is wried that heyond the next six or soyears it might hecom difr culr so find worhwhile investment oppoertniris George realizes that Jenny will need to ka much more ahout the pruspects for the business beiore she can put a final figure on the value af Reeby Spurts, bux he hopes that the intonmaion is sufficient for her to give a preliminary indication the value of the shares 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E Eamings per sha -2104.70 0.23 0B1 110 1.30 132 184 2.00 210 Bok value per hare 931 770 7.00 1.61 asi asi 10.73 11.771317 14.40 -2107 0 6 5 63 10 .3 .0 154 QUESTIONS 1. Hdpkny to fos dividend payments for Rody Sports and to estimate the valuc of te stock. You do not need to priwide a single igure. For example ynu may wish to calculate rwn figures one on the assumption that the oppornnity for futherpoile imesrment disappears after six years and another assuming it disappears after eigh years 2. How much of your estimate ast' the value or Reebyk tock comes from, the present value grwth opportunities 104 Part One Value MINI-CASE .. Reeby Sports Ten years ago, in 21T, Geoee Rechy kounded a sma-onder company slling high-quality sparts equipment. Since those early days Recby Sports has grown stcadily and been consistently peotitule. The company hasissued 2 mallion shares, all of ahich are ed lby Genge Reeby and his live children er seme manths Geae has been wondering whether the time has come to take the company lxdik:.This would allow him to cash inan part of his nveineill ald wold milke it easier for the firm to raie capital should i wish to expand in the furure But how much are the shares worth? George's first instinct is ta lock a the firms balance sheet which shows that the booke of the equity is S26.34 mllion, or $13.17 pur share. A share price af SI317 would put the sockon a P ratio && Th is quite a bit lawer than the 131 E rutio of Reeby's larger rival, Melly Sports George supects that heok vale is not necessarily a good guide to a shares market alue. He thinks af his daughter Jenny. wh works in an inestment hank. She anuld undnubtedly know at the shares are wurth.Hedcics o phone ber aterse inises work thu evening al9 oclock or befiore shbe starts the next day at 6.00 am. Belophoning, (ie.rgel"ls' krens ometrsk dalk 'n the compeity's profitability After reco- eting Irwn its carly krsses, the ampeny has ca' "ed a rcturn th is highGY than itselimpsted los cost of capital Gcorge is fairly contident that the compny could comime a grow irly steadily ar the next six to eight years In fact he feels that the companys growth has hoen somewhat hekl bak in the last few years by the demands from tw of the chiklren for the company to make large dividend pay ments. Perhaps, if thecompany went publice, it oud hold hack on dividends and plow mane monyk o the business There are some douds en the harizon. Campetition is inerening and only tha marning Molly Sperts announced plans ta form a mail-onter division Ceorge is wried that heyond the next six or soyears it might hecom difr culr so find worhwhile investment oppoertniris George realizes that Jenny will need to ka much more ahout the pruspects for the business beiore she can put a final figure on the value af Reeby Spurts, bux he hopes that the intonmaion is sufficient for her to give a preliminary indication the value of the shares 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E Eamings per sha -2104.70 0.23 0B1 110 1.30 132 184 2.00 210 Bok value per hare 931 770 7.00 1.61 asi asi 10.73 11.771317 14.40 -2107 0 6 5 63 10 .3 .0 154 QUESTIONS 1. Hdpkny to fos dividend payments for Rody Sports and to estimate the valuc of te stock. You do not need to priwide a single igure. For example ynu may wish to calculate rwn figures one on the assumption that the oppornnity for futherpoile imesrment disappears after six years and another assuming it disappears after eigh years 2. How much of your estimate ast' the value or Reebyk tock comes from, the present value grwth opportunities