Encore International Case Analysis
Encore International had an impressive/outstanding growth. However, there were rumors that Encore might face little or no growth in the future and no growth in future dividends. The company founder, Jordan Ellis did not think so. According to the text, he felt that his company could retain or keep a constant annual growth rate in dividends per share of 6%, 8% for the next two years and 6% thereafter and his estimates were based on his long-term expansion plan to European and Latin American markets (pg. 304). He also expected the risk of his firm to increase from 8.8% to 10%, and at that time, the risk free rate was 6%. Encore’s Chief Financial Analyst has appointed junior financial analyst, Marc Scott to determine or set the value of the firm’s current stock by contemplating Jordan Ellis’s predictions.
Below is the 2012 (two thousand and twelve) financial data that Marc, the junior financial has compiled in order words collected to support his Analysis.
Data Item 2012 value
Earnings per share $6.25
Price per share of common stock $40
Book value of common stock equity $60,000,000
Total common shares outstanding 2,500,000
Common stock dividend per share $4
A) Based on the table above, the Firm’s current book value per share is sixty million (60,000,000) and the total common Shares outstanding is 2.5 million. So when you divide sixty million (60,000,000) by two million five hundred dollars (2,500,000), the result is twenty four ($24).