I saw these questions and was curious as to how to solve these problems.
Suppose that in July 2013, Nike Inc. had EPS of $2.43 and a book value of equity of$11.62 per share. Average Maximum Minimum a. Using the average P/E P Price Enterprise Value E Book Sales 29.84 2.44 1.12 + 136% + 70% + 55% - 620/0 - 63% - 48% multiple from the table above, estimate Nike's share price. b. What range of share prices do you estimate based on the highest and lowest PIE multiples in the table above? c. Using the average price to book value multiple in the table above, estimate Nike's share price. d. What range of share prices do you estimate based on the highest and lowest price-to-book value multiples in the table above? 3. Using the average P/E Nike's share price for this multiple from the table above, estimate Nike's share price. case will be $D. (Round to the nearest cent.) b. What range of share prices do you estimate based on the highest and lowest PIE multiples in the table above? Range of prices: The highest price will be $D. (Round to the nearest cent.) The lowest price will be $ :|. (Round to the nearest cent.) c. Using the average price to book value multiple in the table above, estimate Nike's share price. Nike's share price for this case will be $ll. (Round to the nearest cent.) Enter your answer in each of the answer boxes. Enterprise Value EBITDA 9.76 + 85% - 34% Portage Bay Enterprises has $4 million in excess cash, no debt, and is expected to have free cash ow of $1 3 million next year. Its FCF is then expected to grow at a rate of 2% per year forever. If Portage Bay's equity cost of capital is 13% and it has 8 million shares outstanding, what should be the price of Portage Bay stock? The price of Portage Bay's stock is $ per share. (Round to the nearest cent.) O Assume that Cola Co. has a share price of $43.07. The rm will pay a dividend of $1.12 in one year, and you expect Cola Co. to raise this dividend by approximately 6.8% per year in perpetuity. a. If Cola Co.'s equity cost of capital is 8.4%, what share price would you expect based on your estimate of the dividend growth rate? b. Given Cola Co.'s share price, what would you conclude about your assessment of Cola Co.'s future dividend growth? a. If Cola Co.'s equity cost of capital is 8.4%, what share price would you expect based on your estimate of the dividend growth rate? Cola Co.'s price per share should be $|:. (Round to the nearest cent.) b. Given Cola Co.'s share price, what would you conclude about your assessment of Cola Co.'s future dividend growth? Given Cola Co.'s share price today, its dividend growth rate should be :|%. (Round to two decimal places.) Covan, Inc. is expected to have the following free cash ow: Year 1 2 3 4 - - - FCF 11 13 14 15 Grow by 5% per year a. Covan has 6 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price? b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2? a. Covan has 6 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price? The stock price should be $D. (Round to the nearest cent.) b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? If you plan to sell Covan at the beginning of year 2, its price should be $|:. (Round to the nearest cent.) c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2? Your expected return from holding Covan stock until the beginning of year 2 is |:|%. (Round to one decimal place.) CSH has EBITDA of $5 million . You feel that an appropri ropriate EVIEBITDA ratio for CASH is 8 . CSH has $10 million in debt , $5 million in cash and 700,000 shares utstanding . What is your estimate of CSH'S st stock price ? The estimate of CS H 's stock price is ( Round to the nearest cent . )Q Assume the annual return for the lowest turnover portfolio is 17% and the annual return for the highest turnover portfolio is 12%. If you invest $108,000 and have the highest turnover, how much lower will the value of your portfolio be at the end of 10 years than if you had had the lowest turnover? At the end of ten years, your portfolio will be lower by the amount of $ . (Round to the nearest dollar.) 'F Suppose Rocky Brands has earnings per share of $2.27 and EBITDA of $29.9 million. The rm also has 5.6 million shares outstanding and debt of $140 million (net of cash). You believe Deckers Outdoor Corporation is comparable to Rocky Brands in terms of its underlying business, but Deckers has no debt. If Deckers has a PIE of 13.4 and an enterprise value to EBITDA multiple of 7.5, estimate the value of Rocky Brands stock using both multiples. Which estimate is likely to be more accurate? The value of Rocky Brands stock using the P/E ratio is $ million. (Round to one decimal place.) The value of Rocky Brands stock using the EBITDA ratio is $ million. (Round to one decimal place.) Which estimate is likely to be more accurate? (Select from the dropdown menu.) V is the more accurate valuation method. Enterprise Value to EBITDA ratio P I E ratio O Apnex, lhc., is a biotechnology rm that is about to announce the results of its clinical trials of a potential new cancer drug. If the trials are successful, Apnex stock will be worth $68 per share. If the trials are unsuccessful, Apnex stock will be worth $17 per share. Suppose that the morning before the announcement is scheduled, Apnex shares are trading for $58 per share. a. Based on the current share price, what sort of expectations do investors seem to have about the success of the trials? b. Suppose hedge fund manager Paul Kliner has hired several prominent research scientists to examine the public data on the drug and make their own assessment of the drug's promise. Would Kliner's fund be likely to prot by trading the stock in the hours prior to the announcement? 0. Which factors would limit the ability of Kliner's fund to prot on its information? U A. Ihe market seems to assess a somewhat greater than 50% chance of success. 0 B. The market seems to believe the trials will not be successful. 0 C. The market seems to have no clue about what will happen to the stock price. 0 D. The market seems to expect a 50% decline in the stock price. b. Suppose hedge fund manager Paul Kliner has hired several prominent research scientists to examine the public data on the drug and make their own assessment of the drug's promise. Would Kliner's fund be likely to prot by trading the stock in the hours prior to the announcement? Kliner's fund would likely (Select the best choice below.) 0 A. prot, since the data on the drug is public. 0 B. do nothing, since that would be insider trading. 0 C. lose money, since nobody can predict what the stock market is going to do. 0 D. prot, if they have better information than other investors. c. Which factors would limit the ability of Kliner's fund to prot on its information? The limitation to the fund's ability to prot is that (Select the best choice below.) 0 A. Kliner might not have enough money to prot with this trade. 0 B. the market may be illiquidno one wants to trade if they know Kliner has better information. 0 C. the stock price mav be low prior to the announcement. Click to select your answer. (7: Q Victoria Enterprises expects earnings before interest and taxes (EBIT) next year of $1 .5 million. Its depreciation and capital expenditures will both be $310,000, and it expects its capital expenditures to always equal its depreciation. Its working capital will increase by $48,000 over the next year. Its tax rate is 30%. If its WACC is 11% and its FCFs are expected to increase at 3% per year in perpetuity, what is its enterprise value? The company's enterprise value is $D. (Round to the nearest dollar.) (I Consider the following data for Nike Inc.: In 2009 it had $19,300 million in sales with a 10% growth rate in 2010, but then slows by 1% to the long-run growth rate of 5% by 2015. Nike expects EBIT to be 10% of sales, increases in net working capital requirements to be 10% of any increases in sales, and capital expenditures to equal depreciation expenses. Nike also has $2,300 million in cash, $32 million in debt, 486 million shares outstanding, a tax rate of 24%, and a weighted average cost of capital of 10%. a. Suppose you believe Nike's initial revenue growth rate will be between 7% and 11% (with growth slowing linearly to 5% by year 2015). What range of prices for Nike stock is consistent with these forecasts? b. Suppose you believe Nike's initial revenue EBIT margin will be between 9% and 11% of sales. What range of prices for Nike stock is consistent with these forecasts? c. Suppose you believe Nike's weighted average cost of capital is between 9.5% and 12%. What range of prices for Nike stock is consistent with these forecasts? d. What range of stock prices is consistent if you vary the estimates as in parts (a), (b), and (c) simultaneously? a. Suppose you believe Nike's initial revenue growth rate will be between 7% and 11% (with growth slowing linearly to 5% by year 2015). What range of prices for Nike stock is consistent with these forecasts? The range of prices will be: Highest price share: $:| (Round to the nearest cent.) Lowest price share: $D (Round to the nearest cent.) b. Suppose you believe Nike's initial revenue EBIT margin will be between 9% and 11% of sales. What range of prices for Nike stock is consistent with these forecasts? The range of prices will be: Highest price per share: $|:. (Round to the nearest cent.) Lowest price per share: $ (Round to the nearest cent.) c. Suppose you believe Nike's weighted average cost of capital is between 9.5% and 12%. What range of prices for Nike stock is consistent with these forecasts? Consider the following data for Nike Inc.: In 2009 it had $19,300 million in sales with a 10% growth rate in 2010, but then slows by 1% to the long-run growth rate of 5% by 2015. Nike expects EBIT to be 10% of sales, increases in net working capital requirements to be 10% of any increases in sales, and capital expenditures to equal depreciation expenses. Nike also has $2,300 million in cash, $32 million in debt, 486 million shares outstanding, a tax rate of 24%, and a weighted average cost of capital of 10%. 3. Suppose you believe Nike's initial revenue growth rate will be between 7% and 11% (with growth slowing linearly to 5% by year 2015). What range of prices for Nike stock is consistent with these forecasts? b. Suppose you believe Nike's initial revenue EBIT margin will be between 9% and 11% of sales. What range of prices for Nike stock is consistent with these forecasts? 6. Suppose you believe Nike's weighted average cost of capital is between 9.5% and 12%. What range of prices for Nike stock is consistent with these forecasts? d. What range of stock prices is consistent if you vary the estimates as in parts (a), (b), and (c) simultaneously? ..._ .L..a- _. r..___ ..... __. Highest price per share: $:|. (Round to the nearest cent.) Lowest price per share: $D (Round to the nearest cent.) 6. Suppose you believe Nike's weighted average cost of capital is between 9.5% and 12%. What range of prices for Nike stock is consistent with these forecasts? The range of prices will be: Highest price per share: $:|. (Round to the nearest cent.) Lowest price per share: $D (Round to the nearest cent.) d. Compute the stock prices when the initial revenue growth begins at 7%, the EBIT is 9% of sales, and the WACC is 12%. Then compute the stock price when the initial revenue growth begins at 11%, the EBIT is 11% of sales, and the company's WACC is 9.5%. What is the range of prices under these scenarios? The range of prices will be: Highest price per share: $:| (Round to the nearest cent.) Lowest price per share: $l: (Round to the nearest cent.) Enter your answer in each of the answer boxes
