Mr. Betterman Owino founded a small mail-order company selling high-quality sports equipment in the year 2020. Since those early days Betterman sports has grown steadily and been consistently profitable. The company has issued 2 million shares, all of which are owned by Mr. Betterman Owino and his five children. For some months Betterman has been wondering whether the time has come to take the company public. This would allow him to cash in on part of his investment and would make it easier for the firm to raise capital should it wish to expand in the future. But how much are the shares worth? Betterman's first instinct is to look at the firm's balance sheet, which shows that the book value of the equity is sh 26.34 million, or sh 13.17 per share. A share price of sh 13.17 would put the stock pn a P/E ratio of 6.6. That is quite a bit lower than the 13.1 P/E ratio of Betterman's larger rival, Iten Sports. Betterman suspects that book value is not necessarily a good guide to a share's market value. He thinks of his daughter Jenny, who works in an investment bank. She would undoubtedly know what the shares are worth. He decides to phone her after she finishes work that evening at 9 o'clock or before she starts the next day at 6.00a.m. Before phoning, Betterman jots down some basic data on the company's profitability. After recovering from its early losses, the company has earned a return that is higher than its estimated 10% cost of capital. Betterman is confident that the company could continue to grow steadily for the next six to eight years. In fact he feels that the company's growth has been somewhat held back in the last few years by the demands from two of the children for the company to make large dividend payments. Perhaps, if the company went public, it could hold back on dividends and plow more money back into the business. There are some clouds on the horizon. Competition is increasing and only that morning Iten Sports announced plans to form a mail-order division. Betterman is worried that beyond the next six or so years it might become difficult to find worthwhile investment opportunities. Betterman realizes that Jenny will need to know much about the prospects for the business before she can put a final figure on the value of Betterman Sports, but he hopes that the information is sufficient for her to give a preliminary indication of the value of the shares. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Earning per 2.10 share, sh -0.70 0.23 0.81 1.10 1.30 1.52 1.64 2.00 2.03 Activate Windows Go to Settings to activate Windows. Dividend, 0.00 0.00 0.00 0.00 0.20 0.20 0.20 0.30 0.30 0.60 0.60 0.80 sh hp