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Kenneth Cole Productions (KCP) was acquired in 2012 for a purchase price of $15.29 per share. KCP had 18.9 million shares outstanding, $44.7 million in
Kenneth Cole Productions (KCP) was acquired in 2012 for a purchase price of
$15.29
per share. KCP had
18.9
million shares outstanding,
$44.7
million in cash and no debt at the time of the acquisition.
a. Given a weighted average cost of capital of
10.6%,
and assuming no future growth, what level of annual free cash flow would justify this acquisition price?
b. If KCP's current annual sales are
$480
million, assuming no net capital expenditures or increases in net working capital, and a tax rate of
35%,
what EBIT margin does your answer in part
(a)
require.
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