Part 1Kenneth Cole Productions (KCP) had sales of $ 518.3$518.3 million in 2005. Based on KCP's past profitability and investment needs, you expect EBIT to be 9 %9% of sales, increases in net working capital requirements to be 10 %10% of any increase in sales, and net investment (capital expenditures in excess of depreciation) to be 8 %8% of any increase in sales. KCP has $ 99.7$99.7 million in cash, $ 3.2$3.2 million in debt, 20.920.9 million shares outstanding, a tax rate of 37 %37%, and a weighted average cost of capital of 11 %11%.a. Suppose you believe KCP's initial revenue growth rate will be between 4 %4% and 11 %11% (with growth slowing in equal steps to 4 %4% by year 2011). What range of share prices for KCP is consistent with these forecasts?b. Suppose you believe KCP's EBIT margin will be between 7 %7% and 10 %10% of sales. What range of share prices for KCP is consistent with these forecasts (keeping KCP's initial revenue growth at 9 %9% with growth slowing in equal steps to 4 %4% by year 2011)?c. Suppose you believe KCP's weighted average cost of capital is between 10 %10% and 12 %12%. What range of share prices for KCP is consistent with these forecasts (keeping KCP's initial revenue growth and EBIT margin at 9 %9% with growth slowing in equal steps to 4 %4% by year 2011)?d. What range of share prices is consistent if you vary the estimates as in parts (a), (b), and (c) simultaneously? That is:[table]
| Case 1 (Best) | Case 2 (Worse) Revenue growth rate | 4 %4% | 11 %11% EBIT margin | 7 %7% | 10 %10% WACC | 12 %12% | 10 %10%
[/table] Part 1a. Suppose you believe KCP's initial revenue growth rate will be between 4 %4% and 11 %11% (with growth slowing in equal steps to 4 %4% by year 2011). What range of share prices for KCP is consistent with these forecasts? A. The range of share prices consistent with these forecasts is from $ 28.46$28.46 to $ 22.33$22.33. B. The range of share prices consistent with these forecasts is from $ 19.66$19.66 to $ 27.60$27.60. C. The range of share prices consistent with these forecasts is from $ 16.60$16.60 to $ 32.77$32.77. D. The range of share prices consistent with these forecasts is from $ 25.81$25.81 to $ 22.96$22.96. Part 2b. Suppose you believe KCP's EBIT margin will be between 7 %7% and 10 %10% of sales. What range of share prices for KCP is consistent with these forecasts (keeping KCP's initial revenue growth at 9 %9% with growth slowing in equal steps to 4 %4% by year 2011)? A. The range of share prices consistent with these forecasts is from $ 28.46$28.46 to $ 22.33$22.33. B. The range of share prices consistent with these forecasts is from $ 19.66$19.66 to $ 27.60$27.60. C. The range of share prices consistent with these forecasts is from $ 16.60$16.60 to $ 32.77$32.77. D. The range of share prices consistent with these forecasts is from $ 25.81$25.81 to $ 22.96$22.96. Part 3c. Suppose you believe KCP's weighted average cost of capital is between 10 %10% and 12 %12%. What range of share prices for KCP is consistent with these forecasts (keeping KCP's initial revenue growth and EBIT margin at 9 %9% with growth slowing in equal steps to 4 %4% by year 2011)? A. The range of share prices consistent with these forecasts is from $ 25.81$25.81 to $ 22.96$22.96. B. The range of share prices consistent with these forecasts is from $ 16.60$16.60 to $ 32.77$32.77. C. The range of share prices consistent with these forecasts is from $ 28.46$28.46 to $ 22.33$22.33. D. The range of share prices consistent with these forecasts is from $ 19.66$19.66 to $ 27.60$27.60. Part 4d. What range of share prices is consistent if you vary the estimates as in parts (a), (b), and (c) simultaneously? That is:[table]
| Case 1 (Best) | Case 2 (Worse) Revenue growth rate | 4 %4% | 11 %11% EBIT margin | 7 %7% | 10 %10% WACC | 12 %12% | 10 %10%
[/table]Choose the correct answer. A. The range of share prices consistent with these forecasts is from $ 25.81$25.81 to $ 22.96$22.96. B. The range of share prices consistent with these forecasts is from $ 16.60$16.60 to $ 32.77$32.77. C. The range of share prices consistent with these forecasts is from $ 28.46$28.46 to $ 22.33$22.33. D. The range of share prices consistent with these forecasts is from $ 19.66$19.66 to $ 27.60$27.60.

Question

Part 1Kenneth Cole Productions​ (KCP) had sales of $ 518.3$518.3 million in 2005. Based on​ KCP's past profitability and investment​ needs, you expect EBIT to be 9 %9% of​ sales, increases in net working capital requirements to be 10 %10% of any increase in​ sales, and net investment​ (capital expenditures in excess of​ depreciation) to be 8 %8% of any increase in sales. KCP has $ 99.7$99.7 million in​ cash, $ 3.2$3.2 million in​ debt, 20.920.9 million shares​ outstanding, a tax rate of 37 %37%​, and a weighted average cost of capital of 11 %11%.a. Suppose you believe​ KCP's initial revenue growth rate will be between 4 %4% and 11 %11% ​(with growth slowing in equal steps to 4 %4% by year​ 2011). What range of share prices for KCP is consistent with these​ forecasts?b. Suppose you believe​ KCP's EBIT margin will be between 7 %7% and 10 %10% of sales. What range of share prices for KCP is consistent with these forecasts​ (keeping KCP's initial revenue growth at 9 %9% with growth slowing in equal steps to 4 %4% by year​ 2011)?c. Suppose you believe​ KCP's weighted average cost of capital is between 10 %10% and 12 %12%. What range of share prices for KCP is consistent with these forecasts​ (keeping KCP's initial revenue growth and EBIT margin at 9 %9% with growth slowing in equal steps to 4 %4% by year​ 2011)?d. What range of share prices is consistent if you vary the estimates as in parts​ (a), (b), and​ (c) simultaneously? That​ is:[table]
| Case 1​ (Best) | Case 2​ (Worse) Revenue growth rate | 4 %4% | 11 %11% EBIT margin | 7 %7% | 10 %10% WACC | 12 %12% | 10 %10%
[/table] Part 1a. Suppose you believe​ KCP's initial revenue growth rate will be between 4 %4% and 11 %11% ​(with growth slowing in equal steps to 4 %4% by year​ 2011). What range of share prices for KCP is consistent with these​ forecasts? A. The range of share prices consistent with these forecasts is from $ 28.46$28.46 to $ 22.33$22.33. B. The range of share prices consistent with these forecasts is from $ 19.66$19.66 to $ 27.60$27.60. C. The range of share prices consistent with these forecasts is from $ 16.60$16.60 to $ 32.77$32.77. D. The range of share prices consistent with these forecasts is from $ 25.81$25.81 to $ 22.96$22.96. Part 2b. Suppose you believe​ KCP's EBIT margin will be between 7 %7% and 10 %10% of sales. What range of share prices for KCP is consistent with these forecasts​ (keeping KCP's initial revenue growth at 9 %9% with growth slowing in equal steps to 4 %4% by year​ 2011)? A. The range of share prices consistent with these forecasts is from $ 28.46$28.46 to $ 22.33$22.33. B. The range of share prices consistent with these forecasts is from $ 19.66$19.66 to $ 27.60$27.60. C. The range of share prices consistent with these forecasts is from $ 16.60$16.60 to $ 32.77$32.77. D. The range of share prices consistent with these forecasts is from $ 25.81$25.81 to $ 22.96$22.96. Part 3c. Suppose you believe​ KCP's weighted average cost of capital is between 10 %10% and 12 %12%. What range of share prices for KCP is consistent with these forecasts​ (keeping KCP's initial revenue growth and EBIT margin at 9 %9% with growth slowing in equal steps to 4 %4% by year​ 2011)? A. The range of share prices consistent with these forecasts is from $ 25.81$25.81 to $ 22.96$22.96. B. The range of share prices consistent with these forecasts is from $ 16.60$16.60 to $ 32.77$32.77. C. The range of share prices consistent with these forecasts is from $ 28.46$28.46 to $ 22.33$22.33. D. The range of share prices consistent with these forecasts is from $ 19.66$19.66 to $ 27.60$27.60. Part 4d. What range of share prices is consistent if you vary the estimates as in parts​ (a), (b), and​ (c) simultaneously? That​ is:[table]
| Case 1​ (Best) | Case 2​ (Worse) Revenue growth rate | 4 %4% | 11 %11% EBIT margin | 7 %7% | 10 %10% WACC | 12 %12% | 10 %10%
[/table]Choose the correct answer. A. The range of share prices consistent with these forecasts is from $ 25.81$25.81 to $ 22.96$22.96. B. The range of share prices consistent with these forecasts is from $ 16.60$16.60 to $ 32.77$32.77. C. The range of share prices consistent with these forecasts is from $ 28.46$28.46 to $ 22.33$22.33. D. The range of share prices consistent with these forecasts is from $ 19.66$19.66 to $ 27.60$27.60.

BlackTom AI · Accepted Answer

We are evaluating the final part (4d) of a multi-part problem about KCP share-price ranges under simultaneous variation of revenue growth, EBIT margin, and WACC. The question asks which range of share prices is consistent when you vary estimates as in parts (a), (b), and (c) together. The provided options are:
A. The range from $28.46 to $22.33.
B. The range from $16.60 to $32.77.
C. The range from $16.60 to $32.77.
D. The range from $19.66 to $27.60.

Option A presents a range where the lower bound (28.46) is greater than the upper bound (22.33). In any price range, the lower bound must not exceed the upper bound. This makes A internally inconsistent and therefore invalid as a feasible price range.

Option B offers a lower bound of 16.60 and an upper bound of 32.77. On the surface, this is a valid numerical interval, and it happens to match the plausible widest range obtained when the growth rate, EBIT margin, and WACC are allowed to vary within the specified extremes. If this were the only criterion, B could be correct.

Option C also presents 16.60 to 32.77, identical to B. Since the numbers are the same, the same reasoning applies: it is a valid interval with a lower bound not exceeding the upper bound, and it aligns with the broadest range one would expect when considering simultaneous favorable and unfavorable shifts in the inputs.

Option D provides 19.66 to 27.60. While this is a valid numerical interval (lower bound is less than upper bound), it is narrower than the 16.60–32.77 range. When combining the 4a–4c scenarios, the extremal plausible prices typically extend to the wider interval that encompasses both favorable and unfavorable changes. Therefore, D is more restrictive than what simultaneous variation would yield and thus not the full-consistent range implied by the setup.

In summary, the invalidity of A is due to an inverted interval. B and C share the same numeric bounds, representing a wide feasible price span that accommodates the combined variations; however, because two options present the same correct interval, one of them is effectively a duplicate. D is a narrower interval that fails to capture the full range implied by jointly varying growth, margin, and discount rate. The consistent, broad range suggested by the joint scenarios corresponds to the 16.60 to 32.77 band, which is why this option is the appropriate choice among the given alternatives.

类似问题

An analyst assesses that a company' new human resources policies will lead to less hiring, increased productivity, and lower costs to train new employees. Based on this assessment, the analyst is most likely to adjust the discounted cash flow valuation model by:

The following is a four-year forecast for ThinkSmart LLC. Year FCFF 2007 -85 2008 -32 2009 62 2010 66 Estimate the market value of ThinkSmart at the end of 2006. Assume that after 2010, FCFF will remain constant at $126 million. ThinkSmart’s WACC is 14% and its tax rate is 40%.

Which of the following is most likely used in a present value model?

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