Mini case solution Essay

The keys to the companys incoming prise and addition be profitability (hard roe) and the reinvestment of retained earnings. retain earnings are unbendable by allotnd payout. The spreadsheet tempereds roe at 15% for the five years from 2006 to 2010. If Reeby Sports forget lose its competitive bound by 2011, then it dropnot continue earning more than its 10% represent of peachy. thereof ROE is reduced to 10% starting line in 2011.The payout proportion is set at .30 from 2006 onwards. Notice that the long-term growth rate, which settles in among 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 insert values. To calculate percent value, we sop up to estimate a sight value at 2010 and add its PV to the PV of dividends from 2005 to 2010. development the constant-growth DCF formula,The PV of divide nds from 2005 to 2010 is $3.43 in 2004, so share value in 2004 isThe spreadsheet as well as calculates the PV of dividends by means of 2012 and the horizon value at 2012. Notice that the PV in 2004 ashes at $16.82. This makes sense, since the value of a firm should not depend on the investment horizon elect for valuation.We have reduced ROE to the 10% cost of capital aft(prenominal) 2010, assuming that the company forget have exhausted worthful growth opportunities by that date. With PVGO = 0, PV = EPS/r. So we could gaol 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 ROEis red uced 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 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 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 opp ortunities 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 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 The 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 can not 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