What range of share prices do you estimate based on the

What range of share prices do you estimate based on the

21. Consider the valuationof Kenneth Cole Productions in Example 9.7.
a. Suppose you believe KCP’s initial revenuegrowth rate will be between 4% and 11% (with growth slowing inequal steps to 4% by year 2011). What range of share prices for KCPis consistent with these forecasts?
b. Suppose you believe KCP’s EBIT marginwill be between 7% and 10% of sales. What range of share prices forKCP is consistent with these forecasts (keeping KCP’s initialrevenue growth at 9%)?
c. Suppose you believe KCP’s weightedaverage cost of capital is between 10% and 12%. What range of shareprices for KCP is consistent with these forecasts (keeping KCP’sinitial revenue growth and EBIT margin at 9%)?
d. What range of share prices is consistentif you vary the estimates as in parts (a), (b), and(c)simultaneously?
22. You notice thatPepsiCo has a stock price of $52.66 and EPS of $3.20. Itscompetitor, the Coca- Cola Company, has EPS of $2.49. Estimate thevalue of a share of Coca-Cola stock using only thisdata.
23. Suppose that inJanuary 2006, Kenneth Cole Productions had EPS of $1.65 and a bookvalue of equity of $12.05 per share.
a. Using the average P/Emultiple in Table 9.1, estimate KCP’s share price.
b. What range of share prices do youestimate based on the highest and lowest P/E multiplesinTable 9.1?
c. Using the average price to book valuemultiple in Table 9.1, estimate KCP’s share price.
d. What range of share prices do youestimate based on the highest and lowest price to book valuemultiples in Table 9.1?
24. Suppose that inJanuary 2006, Kenneth Cole Productions had sales of $518 million,EBITDA of$55.6million, excess cash of $100 million, $3 million of debt, and 21million shares outstanding.
a. Using the average enterprise value tosales multiple in Table 9.1, estimate KCP’s shareprice.
b. What range of share prices do youestimate based on the highest and lowest enterprise value to salesmultiples in Table 9.1?
c. Using the average enterprise value toEBITDA multiple in Table 9.1, estimate KCP’s shareprice.
d. What range of share prices do youestimate based on the highest and lowest enterprise value to EBITDAmultiples in Table 9.1?
25. In addition tofootwear, Kenneth Cole Productions designs and sells handbags,apparel, and other accessories. You decide, therefore, to considercomparables for KCP outside the footwear industry.
a. Suppose that Fossil, Inc., has anenterprise value to EBITDA multiple of 9.73 and a P/E multiple of18.4. What share price would you estimate for KCP using each ofthese multiples, based on the data for KCP in Problems 23 and24?
b. Suppose that Tommy Hilfiger Corporationhas an enterprise value to EBITDA multiple of7.19 and a P/E multiple of 17.2. What share price wouldyou estimate for KCP using each of these multiples, based on thedata for KCP in Problems 23 and 24?
26.Consider the following data for the airline industry in early 2009(EV = enterprise value,
BV = book value, NM = not meaningful because divisor isnegative). Discuss the challenges of usingmultiples to value an airline.
27. You read in thepaper that Summit Systems from Problem 6 has revised its growthprospects and now expects its dividends to grow at 3% per yearforever.
a. What is the new value of a share ofSummit Systems stock based on this information?
b. If you tried to sell your Summit Systemsstock after reading this news, what price would you be likely toget and why?
28. In early 2009,Coca-Cola Company had a share price of $46. Its dividend was $1.52,and you expect Coca-Cola to raise this dividend by approximately 7%per year in perpetuity.
a. If Coca-Cola’s equity cost ofcapital is 8%, what share price would you expect based on yourestimate of the dividend growth rate?
b. Given Coca-Cola’s share price, what wouldyou conclude about your assessment of Coca- Cola’s future dividendgrowth?
29.Roybus, Inc., a manufacturer of flash memory, just reported thatits main production facility in Taiwan was destroyed in a fire.While the plant was fully insured, the loss of production willdecrease Roybus’ free cash flow by $180 million at the end of thisyear and by $60 million at the end of next year.
a. If Roybus has 35 millionshares outstanding and a weighted average cost of capital of 13%,what change in Roybus’ stock price would you expect upon thisannouncement? (Assume the value of Roybus’ debt is not affected bythe event.)
b. Would you expect to be able to sellRoybus’ stock on hearing this announcement and make a profit?Explain.
30. Apnex, Inc., is abiotechnology firm that is about to announce the results of itsclinical trials of a potential new cancer drug. If the trials weresuccessful, Apnex stock will be worth $70 per share. If the trialswere unsuccessful, Apnex stock will be worth $18 per share. Supposethat the morning before the announcement is scheduled, Apnex sharesare trading for $55 per share.
a. Based on the current share price, whatsort of expectations do investors seem to have about the success ofthe trials?
b. Suppose hedge fund manager Paul Klinerhas hired several prominent research scientists to examine thepublic data on the drug and make their own assessment of the drug’spromise. Would Kliner’s fund be likely to profit by trading thestock in the hours prior to the announcement?
c. What would limit the fund’s ability toprofit on its information?