Kenneth Cole (KCP) had sales of

$ 507.8

million in 2005. Based on KCP's past profitability and investment needs, you expect EBIT to be

9 %

of sales, increases in net working capital requirements to be

10 %

of any increase in sales, and net investment (capital expenditures in excess of depreciation) to be

8 %

of any increase in sales. KCP has

$ 107

million in cash,

$ 3

million in debt,

22

million shares outstanding, a tax rate of

37 %

,

and a weighted average cost of capital of

11 %

.

a. Suppose you believe KCP's initial revenue growth rate will be between

4 %

and

11 %

*

(*with growth slowing in equal steps to

4 %

by year 2011). What range of share prices for KCP is consistent with these forecasts?

b. Suppose you believe KCP's EBIT margin will be between

7 %

and

10 %

of sales. What range of share prices for KCP is consistent with these forecasts (keeping KCP's initial revenue growth at

9 %

with growth slowing in equal steps to

4 %

by year 2011)?

c. Suppose you believe KCP's weighted average cost of capital is between

10 %

and

12 %

.

What range of share prices for KCP is consistent with these forecasts (keeping KCP's initial revenue growth and EBIT margin at

9 %

with growth slowing in equal steps to

4 %

by year 2011)?

d. What range of share prices is consistent if you vary the estimates as in parts

(a),

(b),

and

(c)

simultaneously? That is: