Stock Valuation: A Second Look

Chapter 10 Stock Valuation: A Second Look 329
11 CSH has EBITDA of $5 million. You feel that an appropriate EV/EBITDA ratio for CSH is g. CSH has $10 million in debt, $2 million in cash, and 800,000 shares outstanding. What is your estimate of CSH’s stock price? 13. Next year, BHH Co. is expected to pay a dividend of $3 per share from earnings of $5 per share. The equity cost of capital for BHH is 12%. What should BHH’s forward p/E ratio be if its dividend growth rate is expected to be 4% for the foreseeable future? 14. GHL, Inc., has a dividend payout ratio of 50%. Its cost of equity is 11% and its dividend growth rate is 5%. If its forward EPS is $6, what is your estimate of its stock price? 15. SLYMN Enterprises has a P/E ratio of 12 and a dividend payout ratio of 40%. If its equity cost of capital is 13%, what growth rate is its P/E ratio consistent with? 16. After researching the competitors of EJH Enterprises, you determine that most com-parable firms have the following valuation ratios (see MyFinanceLab for the data in Excel format):
Comp 1 Comp 2 Comp 3 Comp 4
EV/EBITDA 12 11 12.5 10 P/E 19 18 20 17
EJH Enterprises has EPS of $2, EBITDA of $300 million, $30 million in cash, $40 million in debt, and 100 million shares outstanding. What range of prices is consistent with both sets of multiples? 17. Suppose that in July 2013, Nike had EPS of $2.52 and a book value of equity of $12.48 per share. a. Using the average P/E multiple in Table 10.1, estimate Nike’s share price. b. What range of share prices do you estimate based on the highest and lowest P/E multiples in Table 10.1? c. Using the average price-to-book value multiple in Table 10.1, estimate Nike’s share price. d. What range of share prices do you estimate based on the highest and lowest price-to-book value multiples in Table 10.1? 18. Suppose that in July 2013, Nike had sales of $25,313 million, EBITDA of $3,254 million, excess cash of $3,337 million, $1,390 million of debt, and 893.6 million shares outstanding. a. Using the average enterprise value to sales multiple in Table 10.1, estimate Nike’s share price. b. What range of share prices do you estimate based on the highest and lowest enter-prise value to sales multiples in Table 10.1? c. Using the average enterprise value to EBITDA multiple in Table 10.1, estimate Nike’s share price. d. What range of share prices do you estimate based on the highest and lowest enter-prise value to EBITDA multiples in Table 10.1? 19. Suppose Rocky Brands has earnings per share of $2.30 and EBITDA of $30.7 million. The firm also has 5.4 million shares outstanding and debt of $125 million (net of cash). You believe Deckers Outdoor Corporation is comparable to Rocky Brands in terms of its underlying business, but Deckers has no debt. If Deckers has a P/E of 13.3 and an enterprise value to EBITDA multiple of 7.4, estimate the value of Rocky Brands stock using both multiples. Which estimate is likely to be more accurate?