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iii. How does the average annual growth rate you calculated in (ii) above compare to the average growth rate the U.S. normally expects?

a. The company wouldn’t produce replicas and change their business model (sales are still increasing roughly 20% each year)

Here, in the given pro forma in Exhibit 8, the cost of salt and other in 1984 was 1836 while that in 1983 is 1956. Thus, the growth rate is (1956-1836)/1836=6.6%.

The change in the growth assumption has significant impact on the stock price. Under the high estimate of growth rate 236%, the new price per share is $107.56. Under the low estimate of growth rate 35%, the new price per share is $2.36.

How much value do you expect to be created by operating improvements and capital structure changes envisioned by CD&R?

b. If the company had set a goal of increasing sales by 28% during the next five years, what should be the sales goal for 2008? 4,113,223.68

a) How many shares will the firm have to issue, assuming they issue the new shares at the current price per share?

1. In the last five years the growth in sales for the company has been around 10% per annum, except for the 1997, the growth was 18.78%. In the case, nothing is mentioned that company has made any drastic changes in its strategy to grow faster. In such a scenario, projected a consistent growth of 20% per annum for the next 5 years is too optimistic.

The valuation process, in this case, requires us to estimate the short-run non-constant growth rate and predict future dividends. Then, we must estimate a constant long-term growth rate at which the firm is expected to grow. Generally, we assume that after a certain point of time, all firms begin to grow at a rather constant rate. Of course, the difficulty in this framework is estimating the short-term growth rate, how long the short-term growth will hold, and the long-term growth rate.

a. What risk-free rate and risk premium did you use to calculate the cost of equity?

similar to that of share buyback, the number of new shares outstanding will reduce; thus,

Using this growth rate we calculated a terminal value of $6782.88 and a PV(terminal value) of $4698.39:

Then, we can get growth rates of 2007 -2011 are 2.46%, 1.76%, 4.09%, 3.61% and 2.78% respectively. Finally, we take the average growth rate of 2.94% as long-term growth rate. The computation is showed in Exhibit 2($ in thousands).

7. Which of the following must be true if a firm is experiencing economies of scale?

8) What would BV's 1988 earnings per share be after all of the above adjustments?