Encore International Case Study

Topics: Stock, Dividend yield, Stock market Pages: 3 (610 words) Published: June 19, 2012
MM 5009

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)


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 little or no growth in the future and no growth in future dividends. On the contrary, Jordan Ellis-the company founder, felt that company could maintain constant annual growth rate in dividends per share of 6%, 8% for next 2 years and 6% thereafter based on the expansion plan to European and Latin American markets. This expected to cause the risk from 8.8% to 10%. The risk free rate is 6%. Encore’s CFO assigned junior financial analyst, Marc Scott, to evaluate the firm’s current stock by considering the conservative’s and Jordan Ellis’s predictions.

II. Analysis
Data Item2012 value
Earnings per share$6.25
Price per share of common stock$40
Book value of common stock equity$60,000,000
Total common shares outstanding2,500,000
Common stock dividend per share$4
a. Firm’s current book value per share:
Book value = $ 60 million = $24
Shares outstanding 2.5 million
b. Firm’s current P/E ratio:
Price per share of common stock = $ 40 = 6.4
EPS$ 6.25
c. Required return of Encore Stock (Use Capital Asset Pricing Model / CAPM) risk premium
1. Current:= RFR + βstock (Rmarket – RFR)
= 6% +β (8.8%) assume βstock = 1
= 6% + 1 (8.8%)
= 14.8%...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay about Encore International Case Study
  • Case study Encore international Essay
  • Essay on Encore International Case Study
  • international marketing case study Essay
  • international case Essay
  • Case Study Essay
  • case study Essay
  • case study Essay

Become a StudyMode Member

Sign Up - It's Free