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

question 22

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 will be $210 million.• At year-end 2016,Kenmore Air has reached maturity,and analysts expect its equity will sell for 15 times year 2016 net income.• At year-end 2016,Kenmore Air has $300 million book value of interest-bearing liabilities outstanding at an average interest rate of 10 percent.• 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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