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Case Study, Encore International




Question;Case Study, Encore InternationalIn the world of trendsetting fashion, instinct and marketing savvy are prerequisites to success. Jordan Ellis had both. During 2012, his international casual-wear company, Encore, rocketed to $300 million in sales after 10 years in business. His fashion line covered the young woman from head to toe with hats, sweaters, dresses, blouses, skirts, pants, sweatshirts, socks, and shoes. In Manhattan, there was an Encore shop every five or six blocks, each featuring a different color. Some shops showed the entire line in mauve, and others featured it in canary yellow.Encore had made it. The company's historical growth was so spectacular that no one could have predicted it. However, securities analysts speculated that Encore could not keep up the pace. They warned that competition is fierce in the fashion industry and that the firm might encounter little or no growth in the future. They estimated that stockholders also should expect no growth in future dividends.Contrary to the conservative securities analysts, Jordan Ellis felt 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 2 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 the risk premium on its stock, to increase immediately from 8.8% to 10%. Currently, the risk-free rate is 6%.In preparing the long-term financial plan, Encore's chief financial officer has assigned a junior financial analyst, Marc Scott, to evaluate the firm's current stock price. He has asked Marc to consider the conservative predictions of the securities analysts and the aggressive predictions of the company founder, Jordan Ellis.Marc has compiled these 2012 financial data to aid his analysis:Data item 2012 valueEarnings per share (EPS) $6.25Price per share of common stock $40.00Book value of common stock equity $60,000,000Total common shares outstanding 2,500,000Common stock dividend per share $4.00Based on your analysis of the case study and research, respond to the following:? What is the firm?s current book value per share?? What is the firm?s current P/E ratio?? What is the current required return for Encore stock?? What will be the new required return for Encore stock assuming that they expand into European and Latin American markets as planned?? 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.)? Which valuation method do you believe most clearly represents the true value of the Encore stock?Keep the following points in mind when you write the case analysis:? Identify the critical issues or problems in the case and analyze the key facts related to the issues or problems.? Discuss a tentative solution that addresses the issues or problems and how you would implement your solution.? Integrate information from the textbook and independent research into your case analysis. Cite at least one reference from a recent relevant online source (not Wikipedia). You must provide in-text references and complete citations for all sources.? Make sure the analysis paper is professionally presented. Remember your audience. It is important to present your information as clearly and succinctly as possible. Do not sacrifice thoroughness for brevity. Proofread your work carefully for grammar and spelling errors.Write the case analysis in 3 pages in a Word document. Follow the APA style for writing, editing, and citation of sources. Submit the document to the assignment dropbox


Paper#48913 | Written in 18-Jul-2015

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