Question

Beagle Beauties engages in the development, manufacture, and sale of a line of cosmetics designed to make your dog look glamorous. Below you will find selected information necessary to compute some valuation estimates for the firm. Assume the values provided are from year-end 2019. Also assume that the firm’s equity beta is 1.50, the risk-free rate is 2.70 percent, and the market risk premium is 7.0 percent. Dividends per share $ 2.28 Return on equity 9.50 % Book value per share $ 18.85 Earnings Cash Flow Sales 2019 value per share $ 5.00 $ 6.30 $ 25.65 Average price multiple 13.10 9.54 2.48 Forecasted growth rate 13.60 % 11.29 % 7.37 % Using the PE, P/CF, and P/S ratios, estimate the 2020 share price for Beagle Beauties. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

Calculation of Expected Share price in 2020 :

Using P/E Ratio

Expected Price in 2020 = Earnings of 2019 * (1 + Growth rate) * Average Price Multiple

= 5 * (1 + 0.1360) * 13.10

= 74.408 or 74.41

Using P/CF Ratio

Expected Price in 2020 = CashFlow of 2019 * (1 + Growth rate) * Average Price Multiple

= 6.30 * (1 + 0.1129) * 9.54

= 66.89

Using Price Sales Ratio

Expected Price in 2020 = Sales of 2019 * (1 + Growth rate) * Average Price Multiple

= 25.65 * (1 + 0.0737) * 2.48

= 68.30