Current year EPS $ 2.

50
Growth rate in EPS for next year 20%
P/E Multiple (range) 10 15

Estimated Value (current EPS) ₹ 25.00 ₹ 37.50

Estimated Value (forward EPS) ₹ 30.00 ₹ 45.00
The fact that Garp's EPS are expected to grow more rapidly than the industry suggests that a forward
P/E analysis would be appropriate. For Garp the use of next year's earnings in combination with the
two comp P/E multiples raises the price for Garp significantly as we see above.
 Given
Financial Information (Millions) O'Reilly Advance Auto Zone
Revenues $ 2,120.00 $ 4,400.00 $ 5,890.00
EBITDA 321.86 544.38 1,130.00
Net Income 171.62 240.16 562.44
Earnings per Share 1.507 2.183 7.301
Interest Bearing Debt 120.00 560.00 1,720.00
Common Equity 1,145.77 939.51 641.16
Total Assets 1,713.90 2,615.73 4,401.85

Financial Ratios
Debt to Equity 0.105 0.596 2.683
Gross Margins 43.95% 47.25% 49.09%
Operating Margins 12.47% 9.42% 16.77%
Expected Growth in EPS (5 yrs) 18.50% 16.00% 13.00%

Market Valuations (Millions)

Market Capitalization $ 3,240.00 $ 3,040.00 $ 6,290.00
Enterprise Value 3,360.00 3,600.00 8,010.00

Valuation Ratios
Enterprise Value/EBITDA 10.44 6.61 7.09
P-E Ratio (Trailing) 19.42 13.30 11.56
P-E Ratio (Forward) 15.24 11.21 10.21
Beta 1.24 1.79 1.25

Operating Margin 12.47% 9.42% 16.77%

Return on Equity 14.98% 25.56% 87.72%

Profit Margin 8.10% 5.46% 9.55%

Asset Turnover 123.69% 168.21% 133.81%
Leverage 149.59% 278.42% 686.55%

Product 14.98% 25.56% 87.72%

 Given
Cost of goods sold/Revenues 65%
Fixed operating costs $ 350,000
Variable operating costs/Revenues 10%
Depreciation expense $ 50,000
Salary adjustments $ 100,000
Annual outsourcing savings/Revenues 10%

Historical Incomes Statements for Toys 'n Thing, Inc.

2014 2013 2012
Revenues $ 2,243,155 $ 2,001,501 $ 2,115,002
Cost of goods sold (1,458,051) (1,300,976) (1,374,751)
Gross profits 785,104 700,525 740,251
General and Administrative Expenses* (574,316) (550,150) (561,500)
Net Operating Income $ 210,789 $ 150,375 $ 178,751

*Includes depreciation expense of $50,000 per year.

Solution
a. Years
2014 2013 2012
Net Operating Income $ 210,789 $ 150,375 $ 178,751
Plus: Depreciation expense 50,000 50,000 50,000
EBITDA $ 260,789 $ 200,375 $ 228,751

Valuation EBITDA Multiple 2014 2013 2012

3 $ 782,366 $ 601,126 $ 686,252
4 1,043,155 801,501 915,002
Average $ 912,761 $ 701,313 $ 800,627
b.
2014 2013 2012
EBITDA $ 260,789 $ 200,375 $ 228,751
Plus: Salary adjustments 100,000 100,000 100,000
Plus: Outsourcing savings 145,805 130,098 137,475
Adjusted EBITDA $ 506,594 $ 430,473 $ 466,226

Valuation EBITDA Multiple 2014 2013 2012

3 $ 1,519,781 $ 1,291,418 $ 1,398,677
4 2,026,375 1,721,891 1,864,903
Average $ 1,773,078 $ 1,506,655 $ 1,631,790

Asking price = 5 x 2010 Unadjusted EBITDA $ 1,303,944

Estimated value after adjustments $ 1,773,078
 Given
Levered equity beta 1.27
Risk free rate (10 year US Treasury bond 5.02%
Market risk premium 5.00%

Estimated earnings for 2007 ₹ 5.69 0.0264620393 dates

Dividend payout ratio 40.00%
Stock price (12/07/06) ₹ 86.01
5-year growth rate estimate 10.00% Long-term
Return on Dividend Debt to Price to
Description Market Cap P/E Equity % Yield % Equity Book Value
Sector: Industrial Goods 16.606 14.94% 1.48% 0.87 50.471
Industry: Industrial Equipment & Components 15.900 18.40% 1.41% 0.649 10.11
Emerson Electric Co. $34.61B 19.276 23.72% 2.40% 0.494 4.257
Parker-Hannifin Corp. 9.81B 14.150 18.16% 1.20% 0.308 2.298
Roper Industries Inc. 4.44B 24.685 14.27% 0.50% 0.603 3.122
Pentair Inc. 3.23B 17.943 11.56% 1.70% 0.485 1.974
Walter Industries Inc. 2.19B 23.537 15.70% 0.30% 4.036 2.731

Given
a.
Emerson Comparison
to Industry
P/E Above
ROE Above
Dividend Yield Above
LTD to Equity Below
Price to Book Below -- But higher than
Net Profit Margin all comparison
Above firms--
Price to Cash Flow probably an outlier is
Above
driving the industry
b.
Estimated cost of equity 11.3700%
Estimated growth rate 14%
DCF Estimate of Share Price ₹ -79.46
c.
Imputed growth rate 8.72% using
Impute growth rate projected
8.97% using
dividends
historical
dividend
yields
Net Profit Price To Free
Margin Cash Flow
5.40% 75.481
7.90% -134.900
9.54% 65.156
8.25% 34.392
11.89% 232.735
4.48% 147.667
7.38% -10.682
 Given
Beta 1.66
Dividend payout ratio 48%
EPS for 2007 $ 1.13
Stock Price (12/07/06) $ 20.88
Anticipated growth rate in EPS (5 years) 12%
Return on Equity Long-term Debt
Description Market Cap P/E % Dividend Yield % to Equity
Sector: Technology 5344.81B 27.716 14.77% 1.90% 0.691
Industry: Semiconductor - Broad Line 252.89B 19.9 16.20% 1.30% 0.096
Intel Corp. 120.51B 17.622 19.63% 1.90% 0.064
Texas Instruments Inc. 44.62B 11.08 22.94% 0.50% 0.004
STMicroelectronics NV 16.35B 24.959 7.81% 0.70% 0.209
Advanced Micro Devices Inc. 11.79B 21.152 12.61% 0.00% 0.138
Analog Devices Inc. 11.48B 22.667 15.42% 1.90% NA
Maxim Integrated Products Inc. 10.28B 23.025 16.93% 1.90% NA
National Semiconductor Corp. 8.04B 18.049 25.67% 0.60% 0.012

Intel Solution
Comparison to
a. Industry
P/E Below
ROE Above
Dividend Yield Above
LTD to Equity Below
Price to Book Same
Net Profit Margin Above
Price to Cash Flow Below

b.
Estimated cost of equity 13.32%
Estimated growth rate 10.21%
DCF Estimate of Share Price $ 17.43

c.
Imputed growth rate 10.72%

d.
Estimated future dividends Year Earnings Dividends
2007 $ 1.13 $ 0.54
2008 1.2656 $ 0.61
2009 1.417472 $ 0.68
2010 1.58756864 $ 0.76
2011 1.7780768768 $ 0.85

Future growth rate 10.60%

Value of Intel Shares (2-stage)

2007-2011 $ 2.34
2011 and beyond $ 18.54191550
Estimated equity value $ 20.88
Price to Book Price To Free
Value Net Profit Margin Cash Flow
5.588 10.39% 55.435
3.42 15.50% 193.3
3.437 18.72% 121.039
3.71 18.67% -5577.55
1.764 8.24% -11.219
2.088 10.13% -58.916
3.342 21.48% 311.392
3.681 21.39% NA
4.481 22.18% 154.483