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FOR LINDAData Item 2012 Earning Per Share

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FOR LINDA Data Item 2012 Earning Per Share $6.25 Price per share of common stock $40.00 Book value of common stock equity $60,000,000 Total commn shares outstanding 2,500,000 Common stock dividend per share $4.00 a. What is the firm’s current book value per share? b. What is the firm’s current P/E ratio? c. (1) What is the current required return for Encore stock? (2) What will be the new required return for Encore stock assuming that they expand into European and Latin American markets as planned? d. If the securities analysis are corrected and there is no growth in future dividends. What will be the value per share of the Encore stock? (Note: Use the new required return on the company’s stock here.) e. (1) If Jordan Elli’s predictions are correct, what will be the value per share of Encore stock if the firm maintains a constant annual 6% growth rate in future dividends? ( Note: Continue to use the new required return here.) (2) If Jordan Elli’s predictions are correct, what will be the value per share of Encore stock if the firm maintains constantannual 8% growth rate in dividends per share per share over the next 2 years and 6% thereafter? f. Compare the current(2012) price of the stock and the stock values found in parts a, d, and e. Discuss why these values may differ. Which valuation method do you believe most clearly represents the true value of the Encore stock?


 


Linda, Below is the problem attached to the questions above. Thanks!


 


Encore International


 


             In the world of trendsetting fashion, instinct and marketing savvy are prerequisites to success. Jorday ellis had both. During 2012, his international casual wear company Encore, rocketed to $300 million in sales after 10 years in business. His fashion line covered the young woman from head to toe with hats, sweaters, dresses, blouses, skirts, pants, sweatshirts, socks, and shoes. In Manhattan, theres was an Encore shop every five or six blocks, each featuring adifferent color. Some shops showed the entire line in mauve, and others featured it in canary yellow.


             Encore had made it. The company’s historical growth was so spectacular that no one could have predicted it. However, securities analaysts speculated that Encore could not keep up the pace. They warned that competition is fierce in the fashion industry and that the firm might encounter little or no growth in future dividends.


             Contrary to the conservative securities analysts, Jordan Elli’s felt that the company could maintain a constant annual growth rate in dividends per share of 6% in the future, or possibly 8% for the next 2 years and 6% thereafter. Elli’s based his estimates on an established long-term expansion plan into European and Latin American markets. Venturing into these markets was expected to cause the risk of the firm, as measured by the risk premium on its stock, to increase immediately from 8.8% to 10%. Currently, the risk-free rate is 6%.


             In preparing the long –term financial plan, Encore’s chief financial officer has assigned a junior financial analyst, XXXXX XXXXX, to evaluate the firms current stock price. He asked Marc to consider the conservative predictions of the securities analysts and the aggressive predictions of the company founder, Jordan Ellis. Marc has compiled these 2012 financial data to aid his analysis 

Encore International


 


             In the world of trendsetting fashion, instinct and marketing savvy are prerequisites to success. Jorday ellis had both. During 2012, his international casual wear company Encore, rocketed to $300 million in sales after 10 years in business. His fashion line covered the young woman from head to toe with hats, sweaters, dresses, blouses, skirts, pants, sweatshirts, socks, and shoes. In Manhattan, theres was an Encore shop every five or six blocks, each featuring adifferent color. Some shops showed the entire line in mauve, and others featured it in canary yellow.


             Encore had made it. The company’s historical growth was so spectacular that no one could have predicted it. However, securities analaysts speculated that Encore could not keep up the pace. They warned that competition is fierce in the fashion industry and that the firm might encounter little or no growth in future dividends.


             Contrary to the conservative securities analysts, Jordan Elli’s felt that the company could maintain a constant annual growth rate in dividends per share of 6% in the future, or possibly 8% for the next 2 years and 6% thereafter. Elli’s based his estimates on an established long-term expansion plan into European and Latin American markets. Venturing into these markets was expected to cause the risk of the firm, as measured by the risk premium on its stock, to increase immediately from 8.8% to 10%. Currently, the risk-free rate is 6%.


             In preparing the long –term financial plan, Encore’s chief financial officer has assigned a junior financial analyst, XXXXX XXXXX, to evaluate the firms current stock price. He asked Marc to consider the conservative predictions of the securities analysts and the aggressive predictions of the company founder, Jordan Ellis. Marc has compiled these 2012 financial data to aid his analysis

 

Submitted: 5 years ago.
Category: Homework
Expert:  Linda_us replied 5 years ago.
Hi Jrogers

Thanks for requesting me and sorry for the delay in replying. Actually for the last few days I got stuck in some emergency so could reply.

Let me know if you still need help with this?

Regards

Linda

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