In the world of trendsetting fashion, instinct and marketing savvy are prerequisites to

success. Michael Bolton had both. During 2015, his international casual-wear company, Cozy,
rocketed to $300 million in sales after 10 years in business. His fashion line covered the young
woman from head to toe with hats, sweaters, dresses, blouses, skirts, pants, sweatshirts, socks,
and shoes. In Manhattan, there was an Cozy shop every five or six blocks, each featuring a
different color. Some shops showed the entire line in mauve, and others featured it in canary
yellow.
Cozy had made it. The companys historical growth was so spectacular that no one could
have predicted it. However, securities analysts speculated that Cozy could not keep up the pace.
They warned that competition is fierce in the fashion industry and that the firm might encounter
little or no growth in the future. They estimated that stockholders also should expect no growth
in future dividends.
Contrary to the conservative securities analysts, Michael Bolton felt that the company
could maintain a constant annual growth rate in dividends per share of 6% in the future, or
possibly 8% for the next 2 years and 6% thereafter. Bolton based his estimates on an established
long-term expansion plan into European and Latin American markets. Venturing into these
markets was expected to cause the risk of the firm, as measured by the risk premium on its
stock, to increase immediately from 8.8% to 10%. Currently, the risk-free rate is 6%.
In preparing the long-term financial plan, Cozys chief financial officer has assigned a
junior financial analyst, Bruno Mars, to evaluate the firms current stock price. He has asked
Bruno to consider the conservative predictions of the securities analysts and the aggressive
predictions of the company founder, Michael Bolton. Bruno has compiled these 2015 financial
data to aid his analysis:

Dalam dunia fashion trendsetet, naluri dan pemasaran cerdas merupakan prasyarat untuk sukses.
Michael Bolton memiliki keduanya. Selama tahun 2015, perusahaan pakaian kasual internasionalnya,
Cozy, meroket menjadi 300 juta dolar dalam penjualan setelah 10 tahun menjalankan bisnis. Lini
fashionnya menutupi wanita muda dari kepala sampai kaki dengan topi, sweater, gaun, blus, rok,
celana, kaus, kaus kaki, dan sepatu. Di Manhattan, ada toko Cozy setiap lima atau enam blok,
masing-masing menampilkan warna yang berbeda. Beberapa toko menunjukkan seluruh garis di
ungu muda, dan yang lainnya menampilkannya di kenari kuning.

Cozy telah berhasil. Pertumbuhan historis perusahaan sangat spektakuler sehingga tak
seorang pun bisa meramalkannya. Namun, analis sekuritas berspekulasi bahwa Cozy tidak bisa
mengikuti langkahnya. Mereka memperingatkan bahwa persaingan sangat ketat di industri fesyen
dan bahwa perusahaan mungkin mengalami sedikit atau tidak ada pertumbuhan di masa depan.
Mereka memperkirakan bahwa pemegang saham juga seharusnya tidak mengharapkan adanya
pertumbuhan dividen di masa depan.

Bertolak belakang dengan analis sekuritas konservatif, Michael Bolton merasa bahwa
perusahaan dapat mempertahankan tingkat pertumbuhan tahunan konstan dalam dividen per
saham sebesar 6% di masa depan, atau mungkin 8% untuk 2 tahun ke depan dan 6% setelahnya.
Bolton mendasarkan perkiraannya pada rencana ekspansi jangka panjang yang telah ditetapkan ke
pasar Eropa dan Amerika Latin. Mengawali pasar ini diharapkan dapat menyebabkan risiko
perusahaan, yang diukur dengan premi risiko pada sahamnya, meningkat langsung dari 8,8%
menjadi 10%. Saat ini, tingkat bebas risiko adalah 6%.

Dalam mempersiapkan rencana keuangan jangka panjang, kepala eksekutif Cosy telah
menunjuk seorang analis keuangan junior, Bruno Mars, untuk mengevaluasi harga saham
perusahaan saat ini. Dia telah meminta Bruno untuk mempertimbangkan ramalan konservatif analis
sekuritas dan prediksi agresif pendiri perusahaan, Michael Bolton. Bruno telah mengumpulkan data
keuangan 2015 ini untuk membantu analisisnya:

A. Berapakah nilai buku per saham saat ini?

B. Berapakah rasio P / E perusahaan saat ini?
C. (1) Berapakah imbalan yang dibutuhkan saat ini untuk saham Cozy?
(2) Apa yang akan menjadi pengembalian yang dibutuhkan baru untuk saham Cozy dengan
asumsi bahwa mereka akan berkembang Pasar Eropa dan Amerika Latin seperti yang
direncanakan?
D. Jika analis sekuritas benar dan tidak ada pertumbuhan di masa depan dividen, apa yang akan
terjadi Nilai per saham dari saham Cozy? (Catatan: Gunakan kembali pengembalian yang
diminta baru di perusahaan Stok di sini.)
E. (1) Jika prediksi Michael Bolton benar, berapakah nilai per saham Encore
Saham jika perusahaan mempertahankan tingkat pertumbuhan 6% tahunan konstan dalam
dividen masa depan? (Catatan:Terus gunakan yang baru diperlukan kembali ke sini.)
(2) Jika prediksi Michael Bolton benar, berapakah nilai per saham Encore Saham jika
perusahaan mempertahankan tingkat pertumbuhan tahunan konstan 8% dalam dividen per
saham selama 2 tahun berikutnya dan 6% setelahnya?
F. Bandingkan harga saham saat ini (2015) dan nilai saham yang ditemukan di bagian a, d, dan
e. Diskusikan mengapa nilai ini mungkin berbeda. Metode penilaian mana yang paling Anda
yakini Mewakili nilai sebenarnya dari saham Cozy?

Book value = 60.000.000/2.500.000= $24

Price earning ratio = $40/$6.25= 6.4

Statement of problem : which valation method is most clearly representing the true value of the
encore stock?
 EXECUTIVE SUMMARY

Encore International, a causal-wear company, has spectacular growth after 10 year of business and
plan to have long-term expansion into European and Latin American markets while maintain its
growth in future dividends.

I. Objective
Encore International is a company that has spectacular growth. However the analysts speculated
that Encore might encounter little or no growth in the future and no growth in future dividends. On
the contrary, Jordan Ellis-the company founder, felt that company could maintain constant annual
growth rate in dividends per share of 6%, 8% for next 2 years and 6% thereafter based on the
expansion plan to European and Latin American markets. This expected to cause the risk from 8.8%
to 10%. The risk free rate is 6%. Encores CFO assigned junior financial analyst, Marc Scott, to
evaluate the firms current stock by considering the conservatives and Jordan Elliss predictions.

II. 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. Firms current book value per share:

Book value = $ 60 million = $24
Shares outstanding 2.5 million

b. Firms current P/E ratio:

Price per share of common stock = $ 40 = 6.4
EPS $ 6.25

c. Required return of Encore Stock (Use Capital Asset Pricing Model / CAPM)
risk premium

1. Current: = RFR + stock (Rmarket RFR)

= 6% + (8.8%) assume stock = 1
= 6% + 1 (8.8%)
= 14.8%
2. After expand: = RFR + stock (Rmarket RFR)
= 6% + 1 (10%) assume stock = 1
= 16%
d. Value per share of Encore stock assuming there is no growth in future dividends
Po = D = $ 4 x 1 1 = because no growth in dividend
Kg 16% - 0

= 4 = $ 25
16%

e. (1) Value per share with 6% future dividends growth

Po = D = $ 4 x 1.06 = $42.4
K g 16% - 6%

(2) Value per share with dividend growth 8% in next 2 years and 6% thereafter

Po = $4 x (1.08) + $4 x (1.08) + $4 x (1.08) x (1 + 6%)

(1.16) (1.16) 16% - 6%
(1.16)

= $3.72 + $3.47 + 4.67 x (1.06)

10%
(1.16)

= $7.19 + $ 49.5
(1.16)

= $ 7.19 + $ 36.79

= $ 43.98

f. Valuation Method Value

BV per share $24
Zero Growth $25
Constant growth $42.4
Variable Growth $43.98
Stock Price $40

These values are different because it has differences on dividend growth. Explanations:
BV per share: can not be used as stock valuation, except comparing it with peers and using it as P/B
multiples.
Zero growth: the most conservative method, but lacks of reality sense therefore not a good method
Constant & variable growth: both methods have similar stock price target, but variable growth is
more realistic since it measures shift up or down due to the changing
expectations.
III. Conclusion and Recommendation
3.1 Conclusion
Based on the calculation, the firms current stock is still undervalued compare to the value of stock
with constant or variable growth. Zero growth calculation is considering not a good method because
it will have changes in future whether it increasing or declining.

3.2 Recommendation:
In order to have growth in future dividend, Encore has to consider its financial plan and risk
thoroughly.