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multiples for a number of firms in the newspaper publishing industry. Another newspaper publishing firm (not shown) had Sales of $620 million, EBITDA of $81 million, excess cash of $62 million, $11 million of debt, and 120 million shares: outstanding. If the firm had an EPS of \$0.41, what is the difference between the estimated share price of this firm if the average price-earnings ratio is used and the estimated share price if the average 8 enterprise value/EBITDA ratio is used? On a certain date, Kastbro has a stock price of $42.50, pays a dividend of $0.64, and has an equity cost of capital of 8%. An investor expects the dividend rate to increase by 6% per year in perpetuity. He then sells all stocks that he owns in Kastbro. Given Kastbro's share price, was this a reasonable action? Explain intuitively and mathematically. \begin{tabular}{|c|c|c|c|} \hline Year-end & & S\&P 500 Realized Return & IBM Realized Return \\ \hline & 1996 & 23.30% & 46.30% \\ \hline \hline 3 & 1997 & 24.70% & 26.70% \\ \hline \hline & 1998 & 30.40% & 86.90% \\ \hline \hline & 1999 & 9.00% & 23.10% \\ \hline \hline & 2000 & 2.00% & 0.20% \\ \hline & 2001 & 17.30% & 3.20% \\ \hline & 2002 & 24.30% & 27.00% \\ \hline The average annual return on the S\&.P.500 & 2003 & 31.20% & 27.90% \\ \hline & 2004 & 4.40% & 5.10% \\ \hline & 2005 & 7.40% & 11.30% \\ \hline \end{tabular} The average annual return on the S\&P 500 6 from 1996 to 2005 is