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American Greetings

In: Business and Management

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American Greetings
Question 1:
The shares of American Greetings are currently trading at an EBITDA multiple that is at the bottom of its peer group. Do you think a 3.5 times multiple is appropriate for American Greetings? If not, what multiple of EBITDA do you think is justified? What is the implied share price that corresponds to that multiple? * First I calculated the market value of common equity by multiplying the share price to the shares outstanding. * And to get the Enterprise Value, I added MV of common equity and total debt, then subtracting total cash. * Lastly, I divided enterprise value from EBITDA to achieve my multiple. * Therefore, multiple of 3.5 is fair for American Greetings.
Question 2:
Please model cash flows for American Greetings for fiscal years 2012 through 2015. 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? Based on a discounted cash flow model, what is your best estimate of the implied enterprise value of American Greetings and the corresponding share price? * American Greetings’ sales growth would be steady at 1.5% and their operating margin would be maintained at 8%. With a discount rate of 8.49%, the present value of the company is $1041 and has a stock price of $20.94.
Question 3: What are THE KEY DRIVERS OF VALUE IN YOUR MODEL * The key drivers of value in my models are the free cash flow forecasts, the weighted cost of capital, and the terminal value. Using these three key drivers I was able to define the present value of the firm, which in turn, allowed me to determine the amounts of debt and equity, and ultimately, the share price. Without these three key drivers, It would be incapable of comparing how well (or poorly) the company would perform in variating economic conditions.
Question 4:…...

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