Question

Beagle Beauties engages in the development, manufacture, and sale of a line of cosmetics designed to make your dog look glamorous. Below you will find selected information necessary to compute some valuation estimates for the firm. Assume the values provided are from year-end 2015. Also assume that the firm's equity beta is 1.40, the risk-free rate is 2.95 percent, and the market risk premium is 7.9 percent. Dividends per share Return on equity Book value per share $ 4.32 17.00% $18.00 2015 value per share Average price multiple Forecasted growth rate Earnings $ 6.90 15.00 13.86% Cash Flow $ 7.55 9.99 12.36% Sales $26.60 3.12 8.48% Using the P/E, P/CF, and P/S ratios, estimate the 2016 share price for Beagle Beauties. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Share price Using P/E ratio Using P/CF ratio Using P/S ratio

Answer 1

Answer:

Using P/E ratio Using P/CF ratio Uisng P/S ratio Share Price $117.85 $84.75 $90.03

Working:

Using P/E ratio:

2015 value of Earnings per share = $6.90

Expected 2016 share price = EPS of 2015 * (1 + growth rate) * average price multiple = 6.90 * (1 + 13.86%) * 15 = $117.85

Using PCF ratio 2016 share price = 7.55 * (1 + 12.36%) * 9.99 = $84.75

Using P/S ratio 2016 share price = 26.60 * (1 + 8.48%) * 3.12 = $90.03