Case Analysis: Encore International



Encore International -Case Study

Overview of Case Study

Encore International is a casual wear company and had experienced rocketed sales of $300 million i.e. spectacular growth subsequent to 10 year of business. Their further plan comprises of a long term expansion in market of Europe and Latin America preserving their future dividend growth.

Furthermore, analyst of the Encore has speculated that this company perhaps encounters small or no growth in future as well as future dividend. As the same time, the founder of the company Jordan Ellis consider that the company can preserve steady annual growth rate in dividend per share of 6% or possibly 8% for next two years and 6% afterward. This is based on the European and Latin American market expansion plan. With this, it is expected that the risk will be from 8.8% to 10%. The risk free rate is 6%.

CFO of the company has assign Marc Scott - junior financial analyst for evaluating the current stock of the firm with respect to the conservative's and Jordan Ellis's predictions.

Discussion

From the data available in the case study we will calculate firm's current book value per share, firm's current P/E ratio, current required return for Encore stock, new required return for Encore stock assuming that they expand into European and Latin American markets as planned, with no growth in future dividends the value per share of the Encore stock.

a) Encore International Current Book Value per Share

In order to determine the current book value per share, the following formula will be used (Graham, Smart, Megginson, 2011):

Current Book Value per Share = Common Stock Book Value

Total number of Common Stock Outstanding

= $ 60, 000, 000 2, 500, 000

= $ 24 per share

The current book value per share would be $ 24 of Encore International.

b) Encore International ...