# Based on the information below

1. Based on the information below, compute an estimated price range for this company at the end of 2020 using price-ratio analysis. Assume that the historical average growth rates will remain constant into the foreseeable future.
 Year 2014 2015 2016 2017 2018 2019 Price \$94.5 \$100.4 \$99.10 \$97.9 \$121.5 \$136.80 EPS 4.34 5.05 5.22 6.06 7.00 8.00 CFPS 7.27 8.24 8.71 10.12 11.8 3.10 SPS 52.6 58.52 57.90 60.69 71.6 78.70

1. In the chapter, a considerable amount of time was spent on estimating a stock’s price using dividend discount models. Suppose the dividends per share over the same period were \$1.00, \$1.08, \$1.17, \$1.25, \$1.35, and \$1.40, respectively. Compute the expected share price at the end of 2020 using the perpetual growth method. Assume the market risk premium is 7.5 percent, Treasury bills yield 3 percent, and the projected beta of the firm is 1.10.

1. Compare the estimated price range of the stock computed in question 1 to what you find in question 2. Offer an explanation as to why such a price disparity between the two models could occur.

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# Based on the information below

Based on the information below build a Cash Budget for J & J Sports Inc.’s potential expansion.

• Expected revenues for the first two years are as follows.
• Sales for the 1st quarter of Year 3 are projected at \$650,000.
 Year 1 (‘000s) Year 2 (‘000s) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 50.00 90.00 160.00 200.00 280.00 350.00 440.00 550.00
• General and administrative expenses (wages, taxes, office etc.) are estimated to be \$10,000 in Year 1 – Q1 and 20% of sales thereafter.
• Sales salaries and commissions are estimated to be 8% of sales.
• Accounts receivable at the beginning of this expansion are \$0.
• Collection period = 30 days
• Accounts payable at the beginning of the expansion are \$0.
• The Company quarterly purchases from suppliers = 50% of the next quarter’s forecasted sales.
• Suppliers are paid on average in 60 days.
• The company expects capital outlays in both Year 1 – Q1 of \$40,000 and Year 2- Q1 of \$20,000 each.
• The expansion will start with an initial cash loan from the parent company of \$100,000. Interest on this loan is \$2,500 per quarter. The company will pay back the full \$100,000 in the Year 2 – Q4.
• Interest on any additional short-term borrowing is expected to be 5% per quarter.
• The Company wishes to maintain a \$100,000 minimum balance at all times to best manage its working capital and any unexpected commitments.

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