Integrative Case 3 Encore International In the world of trendsetting fashion, instinct and marketing, savvy are prerequisites company, Encore, rocketed to $300 million in sales after 10 years in business. His fashion line covered the young woman from head to toe with hats, sweaters, dresses, blouses, skirts, pants, sweatshirts, socks, and shoes. In Manhattan, there was an Encore shop every five or six blocks, each featuring a different color. Some shop showed the entire line in mauve, and other featured in canary yellow Encore had made it. The company's historical growth was so spectacular that no one could have predicted it. However, securities analysts speculated that Encore could not keep up the pace. They warned that competition is fierce in the fashion industry and that the firm might encounter little or no growth in the future. They estimated that stockholders also should expect no growth in future dividends. Contrary to the conservative securities analysts, Jordan Ellis believed that the company could maintain a constant annual growth rate in dividends per share of 6% in the future, or possibly 8% for the next 2 years and 6% thereafter. Ellis based his estimates on an established long-term expansion plan into European and Latin American markets. Venturing into these markets was expected to cause the risk of the firm, as measured by the risk premium on its stock, to increase immediately from 8.8% to 10%. Currently, the risk-froe rate is 6%. In preparing the long-term financial plan, Encore's chief financial officer has as signed a junior financial analyst, Marc Scott, to evaluate the firm's current stock price. He has asked Matc to consider the conservative predictions of the securities analysts and the aggressive predictions of the company founder, Jordan Ellis. Marc has compiled the fellowing 2015 financial data to aid his analysis. Data item 2015 value Famings per share (EPS 5625 Price per share of common stock SALOO Book value of common stock equity $60,000,000 Totalcomon shares outstanding 2.500.000 Common stock dividend per share 54000 TO DO 1. What is the firm's current book value per share? b. What is the firm's current PE ratio? 6. (1) What is the current required return for Encore stock? (2) What will be the new required return for Encore stock assuming that the firm expands into European and Latin American markets as planned? d. If the securities analysts are correct and there is no growth in future dividends, what will be the value per share of the Encore stock? (Note: Use the new required return on the company's stock here.)
