Question

E5.13. Converting Analysts' Forecasts to a Valuation: Nike, Inc. (Medium) Nike reported book value per share of $15.93 at the end of its 2008 fiscal year. Analysts were forecasting earnings of $3.90 per share for 2009 and $4.45 for 2010, and were also forecasting a five-year growth rate in EPS of 13 percent per year. Prepare a five-year pro forma of earnings based on these forecasts and convert the forecasts to a valuation with the added forecast that residual earnings will grow at the GDP growth rate of 4 percent per year after 2013. Use a required return of 10 percent in your calculations. Table 5.2 in this chapter will help you. Nike traded at $60 per share at the time. Based on your calculations, do you think Nike is reasonably priced? What does your analysis tell you about the long-run growth rate that the market is forecasting for Nike?

Answer 1

page :-) Soli- Know converting · Analysigt Folecayer to a valuation : Nike anc . I will draw a Solution similar to table here is a layout of table 5.2: EPS 2008 A 2009 2010 € 200 € 2012 2013 € 13.80 3.90 | 40 45 5.03 5.68 6.42 10.88 10.90 | .02 1116 | 131 10048 DPS : BPS 15193 18.93 22.36 22.36 30,60 35:54 ROCE RE (10%. Charge) Discout Rare 124.5/11 2.59.22.51 217/ 2007 2.307 9:557 8479431057 3.360 Color Pres Value of RE 1.100 1.210 | 11331 1.464 9.097 2.113 2.0992.088 4.611 2.086 10:48 Total Pvto 2009 continuing value cov) prezent value 58.24 36.15 of CV value per 69.56

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