Kenneth Cole (KCP) had sales of

$523.9

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

$96.9

million in cash,

$2.5

million in debt,

21.5

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:

	Case 1	Case 2
Revenue growth rate	4%	11%*
EBIT margin	7%	10%
WACC	10%	12%

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?(Select the best choice below.)

A.The range of share prices consistent with these forecasts is from

$20.09

to

$24.88.

B.The range of share prices consistent with these forecasts is from

$19.18

to

$26.97.

C.The range of share prices consistent with these forecasts is from

$27.82

to

$21.79.

D.The range of share prices consistent with these forecasts is from

$25.22

to

$24.35.

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)?(Select the best choice below.)

A.The range of share prices consistent with these forecasts is from

$19.18

to

$26.97.

B.The range of share prices consistent with these forecasts is from

$25.22

to

$24.35.

C.The range of share prices consistent with these forecasts is from

$27.82

to

$21.79.

D.The range of share prices consistent with these forecasts is from

$20.09

to

$24.88.

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)?(Select the best choice below.)

A.The range of share prices consistent with these forecasts is from

$25.22

to

$24.35.

B.The range of share prices consistent with these forecasts is from

$20.09

to

$24.88.

C.The range of share prices consistent with these forecasts is from

$27.82

to

$21.79.

D.The range of share prices consistent with these forecasts is from

$19.18

to

$26.97.

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

(a),

(b),

and

(c)

simultaneously? That is:

	Case 1	Case 2
Revenue growth rate	4%	11%*
EBIT margin	7%	10%
WACC	10%	12%

(Select the best choice below.)

A.The range of share prices consistent with these forecasts is from

$19.18

to

$26.97.

B.The range of share prices consistent with these forecasts is from

$25.22

to

$24.35.

C.The range of share prices consistent with these forecasts is from

$20.09

to

$24.88.

D.The range of share prices consistent with these forecasts is from

$27.82

to

$21.79.