Calculate rgi and ncis enterprise value

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Reference no: EM131158462

QUESTION 1

You are scanning a list of stocks in the specialty retail sector for bargains. The PE ratios, expected growth rates in earnings, risk levels and payout ratios (including both dividends and stock buybacks) are listed below.

Speciality Retail Stocks

Firm

Current PE

Exp. Growth

Beta

Payout

Gap

45

30%

High

10%

Limited

15

10%

Low

40%

Abercrombie

45

10%

High

10%

Ann Taylor

45

10%

Low

10%

Talbots

15

30%

Low

40%

Gymboree

15

30%

High

40%

Question 2:

Which of these firms is most likely to be under-valued? (Choose only one firm.)

a. Gap

b. Limited

c. Abercrombie

d. Ann Taylor

e. Talbots

f. Gymboree

QUESTION 3 (Refer to Question 1 for background information.)

Which of these firms is most likely to be over-valued? (Choose only one firm.)

a. Gap

b. Limited

c. Abercrombie

d. Ann Taylor

e. Talbots

f. Gymboree

QUESTION 4 One of the principles of using multiples correctly is that one cannot mix-match the numerator with denominator. Both should correspond to the same group of claimholders. Which multiple below is a CORRECT example of following this principle?

a. Market value of equity/free cash flow to the firm

b. Enterprise value/net income

c. Market value of the firm/free cash flow to the equity holders

d. Market value of equity/book value of equity

QUESTION 5: Jorge Zaldys, CFA, is researching the relative valuation of two companies in the aerospace/defense industry, NCI Heavy Industries (NCI) and Relay Group International (RGI). He has gathered relevant information on the companies in the following table.

Relative Valuation

Information

RGI

NCI

EBITDA

100

100

Interest Expense

0

20

Earnings Before Tax

100

80

Tax (40%)

40

32

Net Income

60

48

Cash and Short-term Investments

40

20

MV of Debt

0

400

BV of Debt

0

350

Price per Share

10

20

Shares Outstanding

100

30

Question 6. Calculate RGI and NCI's Enterprise Value.

a. 1,000 / 1,000

b. 1,000 / 600

c. 960 / 1,000

d. 960 / 980

QUESTION 7. (Refer to Question 4 for background information.)

Calculate RGI and NCI's earnings per share.

a. 60, 48

b. 0.6, 1.6

c. 1, 33.33

d. 10, 3.33

QUESTION 8. (Refer to Question 4 for background information.)
Calculate RGI's EV/EBITDA ratio and P/E ratio.

a. 10, 12.5

b. 9.6, 16.67

c. 10, 16.67

d. 9.6, 12.5

QUESTION 9

(Refer to Question 4 for background information.)
Calculate NCI's EV/EBITDA ratio and P/E ratio.

a. 10, 12.5

b. 9.8, 16.67

c. 10, 16.67

d. 9.8, 12.5

QUESTION 10 (Refer to Question 4 for background information.)

Since RGI's P/E ratio is significantly higher than NCI, highly likely RGI is overvalued.
True
False

Reference no: EM131158462

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