Encore International
Data Item 2015 Value
Earnings per share (EPS) $6.25
Price per share of commom stock $40.00
Book value of commom stock equity $60,000,000
Total commom shares outstanding $2,500,000
Common stock dividend per share $4.00
A) What is the firm's current book value per share?
B) What is the firm's current P/E ration ?
C) (1) What is the current required return for Encore stock? (2) What will be the new required return for Encore stock assuming that the firm expands into European and Latin America markets as planned?
D) If the securities analysts are correct and there is no growth in future dividends, what will be the value per share of the Encore stock? (Note : Use the new required return on the company's stock here.)
Jordan Ellis believed that the company could maintain a constant annual growth rate in dividends per share of 6 % in the future, or possibly 8 % for the next two years and 6 % thereafter. Ellis based his estimates on an established long-term expansion plan into European and Latin American markets. Venturing into these markets was expected to cause the risk of the firm, as measured by risk premium on its stock, to increase immediately from 8.8 % to 10%. Currently the risk free rate is 6 %
E) If Jordan Ellis's preedictions are correct, what will be the value per share of Encore stock if the firm maintains a constant annual 6% growth rate in future dividends (Note: Continue to use the new required return here)
F) Compare the current (2015) price of the stock and the stock values found in parts a, d, and e. Discuss why these values may differ. Which valuation method do you believe most clearly represents the true value of the Encore stock.