Please answer questions base on the information provided.

Case 45. American Greetings 1. Read and briefly summarize the case. What is going on at American Greetings? 2. What discount rate (weighted average cost of capital) should American Greetings use to analyze the cash flows? - Use book value of debt as value of debt (Exhibit 45.6). - Use market value of equity as value of equity (Exhibit 45.6). - Use 10-year government bond yield as risk-free rate. 2.8% 3. Exhibit 45.8 provides some guidance on two scenarios: bullish and bearish cash flow forecasts. Based on the two scenarios, model cash flows for American Greetings for fiscal years 2012 through 2015 and estimate its terminal value. Based on the discounted cash flows associated with the forecast, what is the implied enterprise value of American Greetings and the corresponding share price? American Greetings Valuation Model: Bullish Scenario (in millions of dollars) 2011 2012 2013 2014 2015 Steady State Revenue Growth 5.3% 1.0% 1.5% 2.0% 2.5% 3.0% Bullish view (Exhibit 45.8) Operating Margin 9.4% 9.0% 9.0% 9.0% 9.0% 9.0% Bullish view (Exhibit 45.8) NWC Turnover 5.02 6.00 6.50 7.00 7.50 7.50 Bullish view (Exhibit 45.8) Fixed Assets Turnover 1.95 1.95 1.95 1.95 1.95 1.95 Bullish view (Exhibit 45.8) Revenue 1,677 1694 1719 1754 1798 1851 Exhibit 45.2 EBIT 157 152 155 158 162 167 Exhibit 45.2 NWC 334 282 265 251 240 247 Exhibit 45.3 Fixed Assets 859 867 881 898 921 948 Exhibit 45.3 NOPAT 93 94 96 99 102 - Increases in NWC -52 -18 -14 -11 7 - Increases in Net Fixed Assets 9 13 18 22 28 Free Cash Flow 136 99 93 87 67 Terminal Value 1103 American Greetings Valuation Model: Bearish Scenario (in millions of dollars) 2011 2012 2013 2014 2015 Steady State Revenue Growth 5.3% 0.0% 0.0% 0.0% 0.0% 0.0% Bearish view (Exhibit 45.8) Operating Margin 9.4% 8.0% 7.0% 6.0% 5.0% 5.0% Bearish view (Exhibit 45.8) NWC Turnover 5.02 6.00 6.50 7.00 7.50 7.50 Bearish view (Exhibit 45.8) Fixed Assets Turnover 1.95 1.95 1.95 1.95 1.95 1.95 Bearish view (Exhibit 45.8) Revenue 1,677 1677 1677 1677 1677 1677 Exhibit 45.2 EBIT 157 134 117 101 84 84 Exhibit 45.2 NWC 334 280 258 240 224 224 Exhibit 45.3 Fixed Assets 859 859 859 859 859 859 Exhibit 45.3 NOPAT 82 72 61 51 51 - Increases in NWC -55 -22 -18 -16 - - Increases in Net Fixed Assets - - - - - Free Cash Flow 136 93 80 67 51 Terminal Value 565 Bullish View Bearish View Enterprise Value 1121 712 Long-Term Debt 235 235 Value of Equity 886 477 Number of Shares Outstanding 38.3 million 38.3 million Implied Share Price 23.13 12.45 Market Price 12.51 12.51 4. What do you believe to be the value of American Greetings shares? Do you recommend repurchasing shares?