PART III

(4) Compute the per-share value m. Compare your share value estimate from Requirement f with your share value esti. mate from Requirement I. These values should be similar. Part III-Sensitivity Analysis and Recommendation n. Using the free cash flows to common equity shareholders, recompute the value of starbucks shares under two alternative scenarios. Scenario 1: Assume that Starbucks' long-run growth will be 2%, not 3% as before, and assume that Starbucks' required rate of return on equity is 1 percentage point higher than the rate you computed using the CAPM in Requirement a. Scenario 2: Assume that Starbucks' long-run growth will be 4\%, not 3% as before, and assume that Starbucks' required rate of return on equity is 1 percentage point lower than the rate you computed using the CAPM in Requirement a. To quantify the sensitivity of your share value estimate for Starbucks to these variations in growth and discount rates, compare (in percentage terms) your value estimates under these two scenarios with your value estimate from Requirement f. 0. At the end of 2012, what reasonable range of share values would you have expected for Starbucks common stock? At that time, where was the market price for Starbucks shares relative to this range? What would you have recommended? p. If you computed Starbucks' common equity share value using the dividends-based valuation approach in Case 11.1, compare the value estimate you obtained in that case with the estimate you obtained in this case. They should be identical. CASE 12.2 Holmes Corporation LBO Valuation Holmes Corporation is a leading designer and manufacturer of material handling and process equipment for heavy industry in the United ctotacturer of material handling and proce than Net Sales, N by Quarter doubled, and its (4) Compute the per-share value m. Compare your share value estimate from Requirement f with your share value esti. mate from Requirement I. These values should be similar. Part III-Sensitivity Analysis and Recommendation n. Using the free cash flows to common equity shareholders, recompute the value of starbucks shares under two alternative scenarios. Scenario 1: Assume that Starbucks' long-run growth will be 2%, not 3% as before, and assume that Starbucks' required rate of return on equity is 1 percentage point higher than the rate you computed using the CAPM in Requirement a. Scenario 2: Assume that Starbucks' long-run growth will be 4\%, not 3% as before, and assume that Starbucks' required rate of return on equity is 1 percentage point lower than the rate you computed using the CAPM in Requirement a. To quantify the sensitivity of your share value estimate for Starbucks to these variations in growth and discount rates, compare (in percentage terms) your value estimates under these two scenarios with your value estimate from Requirement f. 0. At the end of 2012, what reasonable range of share values would you have expected for Starbucks common stock? At that time, where was the market price for Starbucks shares relative to this range? What would you have recommended? p. If you computed Starbucks' common equity share value using the dividends-based valuation approach in Case 11.1, compare the value estimate you obtained in that case with the estimate you obtained in this case. They should be identical. CASE 12.2 Holmes Corporation LBO Valuation Holmes Corporation is a leading designer and manufacturer of material handling and process equipment for heavy industry in the United ctotacturer of material handling and proce than Net Sales, N by Quarter doubled, and its