Problem 9-05

You are given the following estimated per share data related to the S&P Industrials Index for the year 2018:

Sales	$1,950.00
Depreciation	93.00
Interest expense	62.00

You are also informed that the estimated operating profit (EBIT) margin is 13 percent and the tax rate is 32 percent. Do not round intermediate calculations. Round your answers to the nearest cent.

1. Compute the estimated EPS for 2018.

   $

2. Assume that a member of the research committee for your firm feels that it is important to consider a range of operating profit margin (OPM) estimates. Therefore, you are asked to derive both optimistic and pessimistic EPS estimates using 12 and 14 percent for the OPM and holding everything else constant.

   Optimistic EPS: $

   Pessimistic EPS: $

Problem 9-10

Lauren Entertainment, Inc., has an 17 percent annual growth rate compared to the market rate of 6 percent. If the market multiple is 19, determine P/E ratios for Lauren Entertainment, Inc., assuming its dividend yield is zero, its beta is 1.00 and you feel it can maintain its superior growth rate for:

1. the next 10 years. Do not round intermediate calculations. Round your answer to two decimal places.

2. the next 5 years. Do not round intermediate calculations. Round your answer to two decimal places.

Problem 9-13

Assume that the 10-year U.S. Treasury is yielding 5.5 percent. Next year's earnings for the S&P 500 are expected to be $145. Use the Fed model to estimate the value of the S&P 500. Do not round intermediate calculations. Round your answer to two decimal places.

If the S&P 500 is trading at 2,050, is the market overvalued or undervalued, and by how much? Do not round intermediate calculations. Round your answer to two decimal places.

The market is (-----------) by (----) %.