FIN550 Week 6 Homework
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Fin550Week6HomeworkQuestion12-7Help.xlsx12-7
| From Problem 6 | |||
| Consensus | optimisitc | Pessimistic | |
| Sales | $ 1,450.00 | $ 1,450.00 | $ 1,450.00 |
| Depreciation | $ 58.00 | $ 58.00 | $ 58.00 |
| Interest Expense | $ 28.00 | $ 28.00 | $ 28.00 |
| EBIT | $ 174.00 islan_000: islan_000: This EBIT is calculated at a 12% return, which is the consensus return. | $ 188.50 islan_000: islan_000: EBIT at the optimistic 13% return | $ 159.50 islan_000: islan_000: EBIT at the pessiistic return of 11% |
| less: | |||
| Depreciation | $ 58.00 | $ 58.00 | $ 58.00 |
| Interest Expense | $ 28.00 | $ 28.00 | $ 28.00 |
| EBT | $ 88.00 | $ 102.50 | $ 73.50 |
| Taxes | $ 28.16 | $ 32.80 | $ 23.52 |
| NI or EPS | $ 59.84 islan_000: islan_000: Each of the NI or EPS is a simple function of following the income statement math | $ 69.70 | $ 49.98 |
| Problem 7 | |||
| D/E | 0.55 | 0.45 | 0.65 |
| Nominal RFR | 0.09 | 0.08 | 0.1 |
| Risk Premium | 0.04 | 0.03 | 0.05 |
| ROE | 0.13 | 0.15 | 0.11 |
| Required Return | 0.13 islan_000: islan_000: Required return is the risk free rate plus the risk premium. | 0.11 | 0.15 |
| Growth rates | 0.0585 islan_000: islan_000: Growth rate is 1-D/E multiplied times the ROE | 0.0825 | 0.0385 |
| P/E Ratios | 7.6923076923 islan_000: islan_000: The P/E ratio is calculated by dividing the D/E ratio by the (required return - growth rate) | 16.3636363636 | 5.8295964126 |
| Index Price | 460.3076923077 islan_000: islan_000: Multiply the P/E ratio times the NI or EPS determined in problem 6 | 1140.5454545454 | 291.3632286996 |
| rate of return (7-b) | -77.55% | -44.36% | -85.79% |
