You are examining three retail companies and have compiled the following information. EV/Sales After-tax operating margin (next year) Sales/Capital Ratio All Retail 0.90 6.00% 2.00 Luxury Retail 2.25 16.00% 1.25 Online Retail 7.50 NA 6.00 Expected growth rate in operating income Life Cycle 3.00% Mature 3.00% Mature High Growth a) If you assume that the All Retail is priced fairly, estimate the cost of capital for a typical retail firm. (7 points) b) Now assume that you believe that luxury retailers have a 10% cost of capital. How under-or overvalued is the luxury retail. (8 points) c) Finally, consider online ETFs, which are showing high revenue growth, while losing money today. While you unable to estimate an intrinsic EV/Sales ratio, a regression of all retail firms yields the following: EV/Sales = 1.80 + 25.0 (Annual Revenue growth rate) 15.0 (Cost of Capital) (Enter percentages as decimals in the regression, 15% is entered as .15). If the cost of capital for online retailers is 12%, estimate the annual growth rate you would need in revenues to justify today's EV/Sales ratio. (5 points) You are examining three retail companies and have compiled the following information. EV/Sales After-tax operating margin (next year) Sales/Capital Ratio All Retail 0.90 6.00% 2.00 Luxury Retail 2.25 16.00% 1.25 Online Retail 7.50 NA 6.00 Expected growth rate in operating income Life Cycle 3.00% Mature 3.00% Mature High Growth a) If you assume that the All Retail is priced fairly, estimate the cost of capital for a typical retail firm. (7 points) b) Now assume that you believe that luxury retailers have a 10% cost of capital. How under-or overvalued is the luxury retail. (8 points) c) Finally, consider online ETFs, which are showing high revenue growth, while losing money today. While you unable to estimate an intrinsic EV/Sales ratio, a regression of all retail firms yields the following: EV/Sales = 1.80 + 25.0 (Annual Revenue growth rate) 15.0 (Cost of Capital) (Enter percentages as decimals in the regression, 15% is entered as .15). If the cost of capital for online retailers is 12%, estimate the annual growth rate you would need in revenues to justify today's EV/Sales ratio. (5 points)