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.