Chapter 9 Problem 16 Answers+AA1:T55					Notes:
					One: Only enter answers into the "Green" Cells.
	Harley-Davidson Inc. 2004 ($ millions)				Two: You MUST use the Excel Formulas, do NOT simply put a number in the answer cell.
Net income	$ 889.77				Three: A few Cells may have some guidance to help you with the answers.
Number of common shares, millions	294.31
Earnings before interest and tax	$ 1,402.30
Tax rate	35.5%
Book value of equity	$ 3,218.47
Book value interest-bearing debt	$ 1,295.44
Total Sales	$ 5,320.45
Total Assets	$ 5,483.29						Step 1:
							Excluding
	Harley-	Arctic		Polaris	Marine	Winnebago	Harley-Davidson:
	Davidson	Cat	Brunswick	Industries	Products	Industries	Median	Mean
			Comparison of Timberland with Comparable Companies:
			Growth Rates, Financial Risks, Size, Returns
5-year growth rate in sales (%)	15.5	6.2	4.1	6.1	15.5	10.8	6.200	8.540
5-year growth rate in eps (%)	28.1	11.1	47.1	15.9	25.1	17.2	17.200	23.280
Interest coverage ratio (x)	60.9	*	8.9	85.1	*	*	47.000	47.000
Total liabilities to assets (%)	0.4	0.3	0.6	0.5	0.2	0.5	0.500	0.420
Total assets ($ millions)	5,483	286	4,346	793	110	395	395.000	1,186.000
							^=== Compute the median and mean values for Harley-Davidsons peers here ==v
			Indicators of Value
Price/earnings (x)		16.9	17.8	27.8	28.6	18.6	18.600	21.940
MV firm/EBIT(1-tax rate) (x)		17.3	19.4	24.3	29.0	17.6	19.400	21.520
MV equity/BV equity (x)		2.8	2.8	8.0	7.7	6.5	6.500	5.560
MV firm/BV firm (x)		2.8	2.3	7.7	7.7	6.5	6.500	5.400
Price/sales (x)		0.8	0.9	1.6	2.7	1.2	1.200	1.440
MV firm/sales (x)		0.8	1.1	1.7	2.7	1.2	1.200	1.500
Step 2:
Enter all assumptions and logic for your valuation methodology in this text box:
Here are my estimates. In coming to these estimates, I judged that Harley-Davidson (HOG) exhibits average financial risk relative to its peers, but an above-average five-year growth rate in sales. All of the companies have modest financial leverage, and HOG is representative of the other companies. The companys above average sales growth suggests to me that its indicator of value for the first two (income-based) ratios should be above the average value for the comparable firms. A figure about 5 percent above the sample average looks about right. I use a slightly lower than average ratio for the market to book ratios for HOG to be conservative, as I feel that HOG may be more capital intensive than its peers. Lastly, HOG's brand name and recognition should result in higher profit margins, thus I choose above average ratios for the sales based ratios.
Step 3 - Enter the estimated indicators of value for Harley-Davidson Inc.:
Price/earnings	23.000	X
MV firm/EBIT(1 - tax rate)	23.000	X	Value of equity = value of firm-value of debt
MV equity/BV equity	5.600	X	BV=bearing debt+market value of equity
MV firm/BV firm	5.000	X
Price/sales (x)	3.000	X
MV firm/sales (x)	3.000	X
Step 4 - The implied value of HOG common stock per share for each indicator of value is:
Price/earnings	$ 69.53	MV=Market Value; BV=Book Value
MV firm/EBIT(1 - tax rate)		EBIT=Net Income+Interest+Taxes
MV equity/BV equity
MV firm/BV firm
Price/sales
MV firm/sales
Average implied value		Check Figure Cell B52 = $62.23
Step 5:
Enter a summary of your valuation findings here: