Using a marginal tax rate of 40% and a market risk premium of 5%, what is your estimate of the appropriate discount rate for the free cash flow forecast?

erican Greetings Greetings is demonstrating to naysayers that the greeting card space is not has accelerated top lme through a combimation of organic gouth and dead. Thes and year to date revenues are trending well ahcad of our forecast. However, the The company has accelerated a cost that is also far greater than we had anticipated growth has come at sending increased by a sturprising $10 million spend i the digital space In Q3 marketing company also accelerated to support the grouth of recentdly lanched candstone.com. In addtim, xpenses this year to roll out new doors in the lA dollar store channel merican Greetingsl has inctuored incremental ex -Jeff Stein, Managing Director, Northcoast and the weather was unseasonably warm in Cleveland. as New Years Day 2012 headquarters for American Greetings Corporation. But while temperatures were the same could not be said of American Greetings stock price. Over the past sev up months, American Greetings' share price had been cut in half to a year-end clos- ng price of $12.51 (see Exhibit ) American Greetings management historically had turned to share buybacks at times of low equity valuation. With current valuation levels, management was considering going into the market with a $75 million repurchase program. The ion hinged on how the future of the enterprise was expected to play out. If the share price reasonably reflected the bleak prospects of American Greetings, man- ment should preserve cash for future needs. If, on the other hand, American Greetings stock was simply temporarily out of favor, the buyback plan presented a prudent defensive strategy American Greetings With $1.7 billion in revenue, American Greetings was the second largest greeting card publisher in the United States. To meet the changing times, American Greetings sold number of company websites. In addition to gift cards, American Greetings marketed giftwraps, candles, party goods, candles, and other giftware. To strengthen its business, This case was prepared by Michael J. Schill, Robert F. Vandell Research Associate Professor of Business reeting cards through traditional retail channels as well as electronically through a VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be reprouced, stored in a retrieval system, used in a spreadsheet, or transmited in any Jorm or by any means-electronic, mechanical, photocopying, recording, or otherwi sion of the Darden School Foundation. Administration. Copyright 2011 by the University of Virginia Darden School Foundati n Charlottesville. se--without the permis- 589