Kenneth Cole (KCP) had sales of

$518.2

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

9%

ofsales, increases in net working capital requirements to be

10%

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

8%

of any increase in sales. KCP has

$97.5

million in cash,

$3.3

million in debt,

21

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: