reeby sports

Project Description:

chapter 4:ten years ago in 2001 george reeby founded a small mail order company selling high-quality sports equipment. since those early days reeby sports has grown steadily and been consistently profitable. the company has issued 2 million shares, all of which are owned by george reeby and his five children. for some months george has been wondering whether the time has come to take the company public. this would allow him to cash in on part of his investment and would make it easier for the firm to raise capital should it wish to expand in the future. but how much are the shares worth? geroge's first instinct is to look at the firm's balance sheet, which shows that the book value of the equity is $26.34 million, or $13.17 per share. a share price of $13.17 would put the stock on a p/e ratie of 6.6. that is quite a bit lower that the 13.1 p/e ratio of reeby's larger rival, molly sports. george suspects the book value is not necessarily a good guide to a share's market value. he thinks of his daughter jenny, who works in an investment bank. she would undoubedly know what the shares are worth. before phoning george jots down some basic data on the company's profitability. after recovering from early losses, the comapny has earned a return that is higher than is estimated 10% cost of capital. george is fairly confident that the company could continue to grow fairly steadily for the next six to eight years. in fact he feels that the company's growth has been somewhat held back in the last few years by the demands from two of the children for the company to make large dividend payments. perhaps, if the company went public, it could hold back on dividends and plow more money back into the business.
2002 2003 2004 2005 2006 2007 2008 2009 2010
earnings per share -$2.10 -$0.70 $0.23 $0.81 $1.10 $1.30 $1.52 $1.64 $2.00 $2.03
dividend $ $0.00 $0.00 $0.00 $0.20 $0.20 $0.30 $0.30 $0.60 $0.60 $0.80
book value per share $ $9.80 $7.70 $7.00 $7.61 $8.51 $9.51 $10.73 $11.77 $13.17 $14.40
roe % -27.10 -7.10 3.00 11.60 14.50 15.30 16.00 15.30 17.00 15.40

chapter 3
the formula for the duration of a perpetual bond that makes an equal payment each year in perpetuity is (1 + yield)/ yield. if each bond yields 5%, which has the longer duration- a perpetual bond or a 15-year zero-coupon bond? what if the yield is 10%?
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Price Type: Negotiable

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