Green Mountain Case Assignment Questions

• 1. Why do you think the stock market is valuing Green Mountain so highly? Consider and discuss the strengths of Green Mountain's business model.

• 2. Imagine you are an investor in Green Mountain and receive Einhorn's presentation on October 17, 2011. Which of Einhorn's concerns resonate most with you and why? Consider both strategic concerns and accounting issues identified by Einhorn.

• 3. Assess how each of Einhorn's concerns will affect Green Mountain's future performance.

• 4. Do you believe Green Mountain's stock is under-, appropriately, or over-valued? Based on your analysis, do you believe the "buy" story or will you sell? In responding, consider the assumptions below necessary to support a price of $47 per share (which is of the prevailing price at the time of the case).

• - Cost of capital = 9.8% (market-risk premium = 6%, risk-free rate - 2%, beta = 1.3)
• - 50% sales growth in year 1 and then decreasing growth by 10% every year for 5 years (50%, 40$, 30%, 20%, 10%) and a terminal sales growth rate of 5%.
• - NOPAT (Net Operating Profit After Taxes)/Sales ratio assumed to stay at 9% (as in 2011) throughout the forecast horizon of 5 years and drop to 8% in the terminal period.
• - Net working capital/Sales ratio assumed to be 12% throughout the forecast horizon.
• - Net long-term asset/Sales ratio assumed to be 50% throughout the forecast horizon (consistent with ratio in 2011).

Green Mountain Case Assignment Questions 1. Why do you think the stock market is valuing Green Mountain so highly? Consider and discuss the strengths of Green Mountain's business model. 2. Imagine you are an investor in Green Mountain and receive Einhorn's presentation on October 17, 2011. Which of Einhorn's concerns resonate most with you and why? Consider both strategic concerns and accounting issues identified by Einhorn. 3. Assess how each of Einhorn's concerns will affect Green Mountain's future performance. 4. Do you believe Green Mountain's stock is under-, appropriately, or overvalued? Based on your analysis, do you believe the \"buy\" story or will you sell? In responding, consider the assumptions below necessary to support a price of $47 per share (which is of the prevailing price at the time of the case). Cost of capital = 9.8% (market-risk premium = 6%, risk-free rate - 2%, beta = 1.3) 50% sales growth in year 1 and then decreasing growth by 10% every year for 5 years (50%, 40$, 30%, 20%, 10%) and a terminal sales growth rate of 5%. NOPAT (Net Operating Profit After Taxes)/Sales ratio assumed to stay at 9% (as in 2011) throughout the forecast horizon of 5 years and drop to 8% in the terminal period. Net working capital/Sales ratio assumed to be 12% throughout the forecast horizon. Net long-term asset/Sales ratio assumed to be 50% throughout the forecast horizon (consistent with ratio in 2011)