Given the Forecast Below,estimate the Fair Market Value of Kenmore

question 15

Essay

Given the forecast below,estimate the fair market value of Kenmore Air's equity per share at the end of 2012 under the following assumptions:
• EBIT in year 2016 is $210 million,and then grows at 4 percent per year forever.• To support the perpetual growth in EBIT,capital expenditures in year 2017 exceed depreciation by $25 million,and this difference grows 4 percent per year forever.• Similarly,working capital investments are $10 million in 2017,and this amount grows 4 percent per year forever.• Kenmore Air's weighted-average cost of capital is 11 percent and its tax rate is 40 percent.• Kenmore Air has 50 million shares outstanding and the market value of its interest-bearing liabilities on the valuation date equals $300 million.

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Definitions:

Dispositional

pertaining to stable characteristics or traits of an individual that influence their behaviors and attitudes.

Kelley's Attribution Theory

A framework suggesting that people interpret their own and others' behaviors by attributing them to either internal dispositions or external situations.

Best Fit Explanation

A theory or hypothesis that most accurately accounts for the evidence or data among competing options.

Own Behavior

An individual's actions or conduct as perceived or governed by their own conscious intentions or habits.