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Reeby Sports case study

Help Jenny to forecast dividend payments for Reeby Sports and to estimate the value of the stock.
· You need to assume ROE for the following years
· Earnings per share (EPS) equals return on equity (ROE) times starting book value per share (BVPS). EPS is divided between dividends and retained earnings, depending on the dividend payout ratio. BVPS grows as retained earnings are reinvested.
You do not need to provide a single figure. For example, you may wish to calculate
two figures, one on the assumption that the opportunity for further profitable investment
disappears after six years and another assuming it disappears after eight years. You can simulate different patterns of dividends until they settle to the long term growth rate and then apply the model we have seen in the class notes.
How much of your estimate of the value of Reeby’s stock comes from the present value of growth opportunities?
What will be the value of the company if we had used the multiples of the comparable companies.

Sample Solution

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