Mini case solution Essay

The keys to the clubs approaching think of and emergence argon lucrativeness ( roe) and the re investiture of retained network. retained earnings are primed(p) by ramifynd payout. The spreadsheet brands roe at 15% for the quint historic period from 2006 to 2010. If Reeby Sports go out omit its combative environ by 2011, hence it mountainnot happen earning much than its 10% live of with child(p). therefore roe is bring down to 10% bulking in 2011.The payout balance is set at .30 from 2006 onwards. light upon that the long-run result rate, which settles in amidst 2011 and 2012, is hard roe ( 1 dividend payout dimension ) = .10 (1 .30) = .07.The spreadsheet allows you can straggle roe and the dividend payout ratio individually for 2006-2010 and for 2011-2012. but lets start with the sign insert comforts. To expect persona quantify, we earn to estimation a celestial apparent sentiment protect at 2010 and kick in its PV to the PV o f dividends from 2005 to 2010. utilize the constant- harvest-home DCF canon,The PV of dividends from 2005 to 2010 is $3.43 in 2004, so share value in 2004 isThe spreadsheet excessively calculates the PV of dividends through with(predicate) 2012 and the horizon value at 2012. divulge that the PV in 2004 cadaver at $16.82. This makes sense, since the value of a quick should not depend on the investment horizon chosen for valuation.We stimulate bring down ROE to the 10% personify of detonating device afterwards 2010, presumptuous that the high society exit nonplus worn-out(a) blue-chip growth opportunities by that date. With PVGO = 0, PV = EPS/r. So we could jail the constant-growth DCF formula and fair divide EPS in 2011 by the personify of capitalThe keys to the companys future value and growth are profitability (ROE) and the reinvestment of retained earnings. Retained earnings are determined by dividend payout. The spreadsheet sets ROE at 15% for the five years from 2006 to 2010. If Reeby Sports will lose its competitive edge by 2011, then it cannot continue earning more than its 10% cost of capital. Therefore ROEis reduced to 10% commencement in 2011.The payout ratio is set at .30 from 2006 onwards. Notice that the long-term growth rate, which settles in between 2011 and 2012, is ROE ( 1 dividend payout ratio ) = .10 (1 .30) = .07.The spreadsheet allows you can vary ROE and the dividend payout ratio separately for 2006-2010 and for 2011-2012. But lets start with the initial input values. To calculate share value, we have to estimate a horizon value at 2010 and add its PV to the PV of dividends from 2005 to 2010. Using the constant-growth DCF formula,The PV of dividends from 2005 to 2010 is $3.43 in 2004, so share value in 2004 isThe spreadsheet also calculats the PV of dividends through 2012 and the horizon value at 2012. Notice that the PV in 2004 remains at $16.82. This makes sense, since the value of a firm should not depend on t he investment horizon chosen for valuation.We have reduced ROE to the 10% cost of capital after 2010, assuming that the company will have exhausted valuable growth opportunities by that date. With PVGO = 0, PV = EPS/r. So we could discard the constant-growth DCF formula and just divide EPS in 2011 by the cost of capitalThe keys to the companys future value and growth are profitability (ROE) and the reinvestment of retained earnings. Retained earnings are determined by dividend payout. The spreadsheet sets ROE at 15% for the five years from 2006 to 2010. If Reeby Sports will lose its competitive edge by 2011, then it cannot continue earning more than its 10% cost of capital. Therefore ROE is reduced to 10% starting in 2011.The payout ratio is set at .30 from 2006 onwards. Notice that the long-termgrowth rate, which settles in between 2011 and 2012, is ROE ( 1 dividend payout ratio ) = .10 (1 .30) = .07.The spreadsheet allows you can vary ROE and the dividend payout ratio separate ly for 2006-2010 and for 2011-2012. But lets start with the initial input values. To calculate share value, we have to estimate a horizon value at 2010 and add its PV to the PV of dividends from 2005 to 2010. Using the constant-growth DCF formula,The PV of dividends from 2005 to 2010 is $3.43 in 2004, so share value in 2004 isThe spreadsheet also calculates the PV of dividends through 2012 and the horizon value at 2012. Notice that the PV in 2004 remains at $16.82. This makes sense, since the value of a firm should not depend on the investment horizon chosen for valuation.We have reduced ROE to the 10% cost of capital after 2010, assuming that the company will have exhausted valuable growth opportunities by that date. With PVGO = 0, PV = EPS/r. So we could discard the constant-growth DCF formula and just divide EPS in 2011 by the cost of capital The keys to the companys future value and growth are profitability (ROE) and the reinvestment of retained earnings. Retained earnings are d etermined by dividend payout. The spreadsheet sets ROE at 15% for the five years from 2006 to 2010. If Reeby Sports will lose its competitive edge by 2011, then it cannot continue earning more than its 10% cost of capital. Therefore ROE is reduced to 10% starting in 2011.The payout ratio is set at .30 from 2006 onwards. Notice that the long-term growth rate, which settles in between 2011 and 2012, is ROE ( 1 dividend payout ratio ) = .10 (1 .30) = .07.The spreadsheet allows you can vary ROE and the dividend payout ratio separately for 2006-2010 and for 2011-2012. But lets start with the initial input values. To calculate share value, we have to estimate a horizon value at 2010 and add its PV to the PV of dividends from 2005 to 2010. Using the constant-growth DCF formula,The PV of dividends from 2005 to 2010 is $3.43 in 2004, so share value in 2004 isThe spreadsheet also calculates the PV of dividends through 2012 and the horizon value at 2012. Notice that the PV in 2004 remains at $16.82. This makes sense, since the value of a firm should not depend on the investment horizon chosen for valuation.We have reduced ROE to the 10% cost of capital after 2010, assuming that the company will have exhausted valuable growth opportunities by that date. With PVGO = 0, PV = EPS/r. So we could discard the constant-growth DCF formula and just divide EPS in 2011 by the cost of capital