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Lady Antebella is trying to use a spreadsheet model to value the stock of Renaissance Limited. The model has projections for the next four years
Lady Antebella is trying to use a spreadsheet model to value the stock of Renaissance Limited. The model has projections for the next four years based on the following assumptions.
Sales will be $ million in Year
Sales will grow at in Year and Year and in Year
Operating profits EBIT will be of sales in each year.
Interest expense will be $ million per year.
Income tax rate is
Earnings retention ratio would stay at
The pershare dividend growth rate will be constant from Year forward and this final growth rate will be basis points less than the growth rate from Year to Year
The company has million shares outstanding.
Antebella uses the CAPM to estimate the cost of equity.
She uses the annual yield of on the year Treasury bond as the riskfree return. She estimates the expected US equity risk premium to be The estimated Beta of Renaissance is
a Estimate the value of the stock at the end of Year based on the above assumptions.
b Estimate the current value of the stock using the above assumptions.
c Lady Antebella is wondering how a change in the projected sales growth rate would affect the estimated value. Estimate the current value of the stock if the sales growth rate in Year is instead of
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