or this question, use the American Eagle Outfitters 2016 10Ks and 2017 Q1 10Q from the previous questions. Your Managing Director asks you to include valuations based on Comparable Forward PE multiples given that peer capital structures have been relatively similar. She asks you to assume a 14x PE multiple on forward diluted EPS, and a 10% growth rate over LTM diluted EPS to calculate forward EPS, which is bein
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
For this question, use the American Eagle Outfitters 2016 10Ks and 2017 Q1 10Q from the previous questions.
Your Managing Director asks you to include valuations based on Comparable Forward PE multiples given that peer capital structures have been relatively similar.
She asks you to assume a 14x PE multiple on forward diluted EPS, and a 10% growth rate over LTM diluted EPS to calculate forward EPS, which is being assumed by industry analysts.
Using the aforementioned assumptions for Comparable Transactions’ PE multiples, what is the implied AEO share price based on the latest data provided to you from its Corporate filings as of June 2017?
15.12
16.63
16.79
17.86
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