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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