Encore International Case Study - 620 Words

MM 5009 FINANCIAL MANAGEMENT Encore International R46 B – Syndicate 3 Audi Hakim (29111303) Karina Soedjati (29111309) M. Rahadi Prasetya (29111325) Debby Sugithio (29111330) Gilang Surawijaya (29111350) Annisa Trinezia (29111372) MASTER OF BUSINESS ADMINISTRATION SCHOOL OF BUSINESS AND MANAGEMENT INSTITUT TEKNOLOGI BANDUNG 2012 EXECUTIVE SUMMARY Encore International, a causal-wear company, has spectacular growth after 10 year of business and plan to have long-term expansion into European and Latin American markets while maintain its growth in future dividends. I. Objective Encore International is a company that has spectacular growth. However the analysts speculated that Encore might encounter†¦show more content†¦Value per share of Encore stock assuming there is no growth in future dividends Po = D = $ 4 x 1 1 = because no growth in dividend K – g 16% - 0 = 4 = $ 25 16% e. (1) Value per share with 6% future dividends growth Po = D = $ 4 x 1.06 = $42.4 K – g 16% - 6% (2) Value per share with dividend growth 8% in next 2 years and 6% thereafter Po = $4 x (1.08) + $4 x (1.08) ² + $4 x (1.08) ² x (1 + 6%) (1.16) (1.16) ² 16% - 6% (1.16) ² = $3.72 + $3.47 + 4.67 x (1.06) 10% (1.16) ² = $7.19 + $ 49.5 (1.16) ² = $ 7.19 + $ 36.79 = $ 43.98 f. Valuation Method Value BV per share $24 Zero Growth $25 Constant growth $42.4 Variable Growth $43.98 Stock Price $40 These values are different because it has differences on dividend growth. Explanations: BV per share: can not be used as stock valuation, except comparing it with peers and using it as P/B multiples. Zero growth: the most conservative method, but lacks of reality sense therefore not a good method Constant amp; variable growth: both methods have similar stock price target, but variable growth is more realistic since it measures shift up or down due to the changing expectations. III. 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