Mini case solution Essay

The keys to the companys approaching order and produce ar profitability (hard roe) and the re coronation of retained wages. Retained earnings argon driven by breaknd payout. The spreadsheet sets ROE at 15% for the louvre geezerhood from 2006 to 2010. If Reeby Sports impart lag its competitive edge by 2011, indeed it fucknot gallop earning to a greater extent than its 10% follow of big(p). Therefore ROE is cut back to 10% sustaining time in 2011.The payout ratio is set at .30 from 2006 onwards. nock that the semipermanent evolution rate, which settles in between 2011 and 2012, is ROE ( 1 dividend payout ratio ) = .10 (1 .30) = .07.The spreadsheet allows you can sidetrack ROE and the dividend payout ratio separately for 2006-2010 and for 2011-2012. But allows start with the initial input nurses. To calculate allot tax, we pack to think a skyline 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 dividends from 2005 to 2010 is $3.43 in 2004, so share value in 2004 isThe spreadsheet also calculates the PV of dividends finished 2012 and the sight value at 2012. Notice that the PV in 2004 remains at $16.82. This makes sense, since the value of a dissipated should not depend on the investment persuasion chosen for valuation.We spend a penny reduced ROE to the 10% cost of capital afterwards 2010, assuming that the company will have worn out(p) worth(predicate) growth opportunities by that date. With PVGO = 0, PV = EPS/r. So we could discard the constant-growth DCF formula and fairish 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 t han its 10% cost of capital. Therefore ROEis 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 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 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 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 wil l 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