Question

1. Assume Gillette Corporation will pay an annual dividend of $0.63 one year from now. Analysts expect this dividend to grow at 11.9% per year thereafter until the 66th year.​ Thereafter, growth will level off at 2.2% per year. According to the​dividend-discount model, what is the value of a share of Gillette stock if the​ firm's equity cost of capital is 8.9%​?

The value of​ Gillette's stock is:

​(Round to the nearest​ cent.)

2. Portage Bay Enterprises has $3 million in excess​ cash, no​ debt, and is expected to have free cash flow of $10 million next year. Its FCF is then expected to grow at a rate of 4% per year forever. If Portage​ Bay's equity cost of capital is 9% and it has 55 million shares​ outstanding, what should be the price of Portage Bay​ stock?

The price of Portage​ Bay's stock is: per share.  ​(Round to the nearest​ cent.)

3. This​ year, FCF Inc. has earnings before interest and taxes of ​$10,460, 000 depreciation expenses of​$700,000 capital expenditures of $1,100,000, and has increased its net working capital by $475,000. If its tax rate is 25%​, what is its free cash​flow?

The​ company's free cash flow is $

(Round to two decimal​ places.)

4. Suppose Rocky Brands has earnings per share of 2.48 and EBITDA of $29.8 million. The firm also has 5.1 million shares outstanding and debt of $125 million​ (net of​ cash). You believe Deckers Outdoor Corporation is comparable to Rocky Brands in terms of its underlying​ business, but Deckers has no debt. If Deckers has a​ P/E of 13.5 and an enterprise value to EBITDA multiple of 7.8​, estimate the value of Rocky Brands stock using both multiples. Which estimate is likely to be more​ accurate?

The value of Rocky Brands stock using the​ P/E ratio is ​$ million. ​ (Round to one decimal​ place.)

Answer 1

1.

=0.63/1.089*(1-(1.119/1.089)^66)/(1-(1.119/1.089))+(0.63*(1.119^65)*1.022/(8.9%-2.2%))/1.089^66

=156.852374

​2.

The price of Portage​ Bay's stock is: per share.  ​(Round to the nearest​ cent.)

Equity=10/(9%-4%)

Equity=$200 millon

Share price=200/55=$3.636363636

3.

=10460000*(1-25%)-1100000-475000

=6270000

4.

Share price using P/E=13.5*2.48=33.48

Value of stock=33.48*5.1=$170.748 million

Enterprise value using EV/EBITDA=7.8*29.8=232.44

Value of stock=232.44-125=107.44 million

EV/EBITDA is more accurate