American greetings case study | Accounting homework help

1. Using a marginal tax rate of 40% and a market risk premium of 5%, what is your estimate of the appropriate discount rate for the free cash flow forecast? Please explain your results and the implication for American Greetings. Based on a discounted cash flow model, what is your best estimate of the implied enterprise value of American Greetings and the corresponding implied share price? Explain your results and the implication for American Greetings. Use the following table to model the free cash flows for American Greetings for fiscal years 2012 through 2015. Forecast the Steady State cash flows in order to determine the Terminal Value. I have provided guidance for identifying the 2011 actual values and the forecasted values.

2011A

2012 2013 2014 2015 SS Revenue Growth

5.3%

1.0%

1.5%

2.0%

2.5%

3.0%

Operating Margin

9.4%

9.0%

9.0%

9.0%

9.0%

9.0%

NWC Turnover FA Turnover

WACC

9.1%

Tax Rate 40% Revenue Exhibit 2

EBIT

Exhibit 2

NWC

Exhibit 3 =Revenue/NWC TO Fixed Assets Exhibit 3 =Revenue/FA TO

ROC

=EBIT*(1-T)/(NWC+FA)

NOPAT

• Change in NWC
• Change in NFA

FCF

TV

DCF

PV Debt Exhibit 6 Equity Shares Exhibit 6 Implied Price