Question 2 Examine the role of foreign investor participation in the South African bond market as discussed in the interview. How might behavioural finance theories, such as herding behaviour and investor sentiment explain the influence of foreign investors on the JSE's bond market efficiency? Provide examples from the interview to support your analysis. Section B In the volatile world of fashion, where intuition and marketing skills are necessary for success, Johan Wicked succeeded. By 2012, his international casual-wear brand, Best Threads, had surged to $300 million in sales within a decade. Best Threads' fashion line offered a full range of clothing for young women, including hats, sweaters, dresses, blouses, skirts, pants, sweatshirts, socks, and shoes. In Manhattan, Best Threads stores were located every few blocks, each showcasing a different color scheme-some stores focused entirely on mauve, while others highlighted canary yellow. Best Threads' growth was unprecedented, catching even the most optimistic by surprise. Despite this, securities analysts were skeptical about the company's ability to sustain its growth. They warned of the intense competition in the fashion industry and suggested that Best Threads might face stagnation, with no growth in future dividends. In contrast, Johan Wicked remained confident, predicting a consistent 6% annual growth rate in dividends per share or potentially 8% for the next two years followed by 6% thereafter. His optimism was based on a planned expansion into European and Latin American markets, which he believed would increase the company's risk premium on its stock from 8.8% to 10%. The current risk-free rate stood at 6%. To support the company's long-term financial planning, Best Threads' chief financial officer tasked junior financial analyst Koji with assessing the firm's current stock price. Koji was instructed to weigh both the conservative views of the securities analysts and the more ambitious projections of the company's founder, Johan Wicked. Koji gathered the necessary financial data from 2012 to conduct his analysis. Data Item 2012 Value Earnings Per Share (EPS) Price per share of common stock Book Value of common stock equity Common Stock dividend per share # of share outstanding Required: $6.25 $40.00 $60 million $4.00 2.5 million 1. What is the firm's current book value per share for Best Threads? 2. What is the firm's current P/E ratio for Best Threads? 3. (i) What is the current required return for Best Threads stock? (ii) What will be the new required return for Best Threads stock assuming that they expand into European and Latin American markets as planned? Examine the role of foreign investor participation in the South African bond market as discussed in the interview. How might behavioural finance theories, such as herding behaviour and investor sentiment explain the influence of foreign investors on the JSE's bond market efficiency? Provide examples from the interview to support your analysis. Section B In the volatile world of fashion, where intuition and marketing skills are necessary for success, Johan Wicked succeeded. By 2012, his international casual-wear brand, Best Threads, had surged to $300 million in sales within a decade. Best Threads' fashion line offered a full range of clothing for young women, including hats, sweaters, dresses, blouses, skirts, pants, sweatshirts, socks, and shoes. In Manhattan, Best Threads stores were located every few blocks, each showcasing a different color scheme-some stores focused entirely on mauve, while others highlighted canary yellow. Best Threads' growth was unprecedented, catching even the most optimistic by surprise. Despite this, securities analysts were skeptical about the company's ability to sustain its growth. They warned of the intense competition in the fashion industry and suggested that Best Threads might face stagnation, with no growth in future dividends. In contrast, Johan Wicked remained confident, predicting a consistent 6% annual growth rate in dividends per share or potentially 8% for the next two years followed by 6% thereafter. His optimism was based on a planned expansion into European and Latin American markets, which he believed would increase the company's risk premium on its stock from 8.8% to 10%. The current risk-free rate stood at 6%. To support the company's long-term financial planning, Best Threads' chief financial officer tasked junior financial analyst Koji with assessing the firm's current stock price. Koji was instructed to weigh both the conservative views of the securities analysts and the more ambitious projections of the company's founder, Johan Wicked. Koji gathered the necessary financial data from 2012 to conduct his analysis. Data Item Earnings Per Share (EPS) Price per share of common stock Book Value of common stock equity Common Stock dividend per share # of share outstanding Required: 2012 Value $6.25 $40.00 $60 million $4.00 2.5 million 1. If the securities analysts are correct and there is no growth in future dividends, what will be the value per share of the Best Threads stock? (Note: Use the new required return on the company's stock here.) 2. (i) If Johan Wicked's predictions are correct, what will be the value per share of Best Threads stock if the firm maintains a constant annual 6% growth rate in future dividends? (Note: Continue to use the new required return here.) (ii) If Johan Wicked's predictions are correct, what will be the value per share of Best Threads stock if the firm maintains a constant annual 8% growth rate in dividends per share over the next 2 years and 6% thereafter? 3. Compare the current (2012) price of the stock and the stock values found in parts a, d, and e. Discuss why these values may differ. Which valuation method do you believe most clearly represents the true value of the Best Threads stock?
Question 2 Examine the role of foreign investor participation in the South African bond market as discussed in the interview. How might behavioural finance theories, such as herding behaviour and investor sentiment explain the influence of foreign investors on the JSE's bond market efficiency? Provide examples from the interview to support your analysis. Section B In the volatile world of fashion, where intuition and marketing skills are necessary for success, Johan Wicked succeeded. By 2012, his international casual-wear brand, Best Threads, had surged to $300 million in sales within a decade. Best Threads' fashion line offered a full range of clothing for young women, including hats, sweaters, dresses, blouses, skirts, pants, sweatshirts, socks, and shoes. In Manhattan, Best Threads stores were located every few blocks, each showcasing a different color scheme-some stores focused entirely on mauve, while others highlighted canary yellow. Best Threads' growth was unprecedented, catching even the most optimistic by surprise. Despite this, securities analysts were skeptical about the company's ability to sustain its growth. They warned of the intense competition in the fashion industry and suggested that Best Threads might face stagnation, with no growth in future dividends. In contrast, Johan Wicked remained confident, predicting a consistent 6% annual growth rate in dividends per share or potentially 8% for the next two years followed by 6% thereafter. His optimism was based on a planned expansion into European and Latin American markets, which he believed would increase the company's risk premium on its stock from 8.8% to 10%. The current risk-free rate stood at 6%. To support the company's long-term financial planning, Best Threads' chief financial officer tasked junior financial analyst Koji with assessing the firm's current stock price. Koji was instructed to weigh both the conservative views of the securities analysts and the more ambitious projections of the company's founder, Johan Wicked. Koji gathered the necessary financial data from 2012 to conduct his analysis. Data Item 2012 Value Earnings Per Share (EPS) Price per share of common stock Book Value of common stock equity Common Stock dividend per share # of share outstanding Required: $6.25 $40.00 $60 million $4.00 2.5 million 1. What is the firm's current book value per share for Best Threads? 2. What is the firm's current P/E ratio for Best Threads? 3. (i) What is the current required return for Best Threads stock? (ii) What will be the new required return for Best Threads stock assuming that they expand into European and Latin American markets as planned? Examine the role of foreign investor participation in the South African bond market as discussed in the interview. How might behavioural finance theories, such as herding behaviour and investor sentiment explain the influence of foreign investors on the JSE's bond market efficiency? Provide examples from the interview to support your analysis. Section B In the volatile world of fashion, where intuition and marketing skills are necessary for success, Johan Wicked succeeded. By 2012, his international casual-wear brand, Best Threads, had surged to $300 million in sales within a decade. Best Threads' fashion line offered a full range of clothing for young women, including hats, sweaters, dresses, blouses, skirts, pants, sweatshirts, socks, and shoes. In Manhattan, Best Threads stores were located every few blocks, each showcasing a different color scheme-some stores focused entirely on mauve, while others highlighted canary yellow. Best Threads' growth was unprecedented, catching even the most optimistic by surprise. Despite this, securities analysts were skeptical about the company's ability to sustain its growth. They warned of the intense competition in the fashion industry and suggested that Best Threads might face stagnation, with no growth in future dividends. In contrast, Johan Wicked remained confident, predicting a consistent 6% annual growth rate in dividends per share or potentially 8% for the next two years followed by 6% thereafter. His optimism was based on a planned expansion into European and Latin American markets, which he believed would increase the company's risk premium on its stock from 8.8% to 10%. The current risk-free rate stood at 6%. To support the company's long-term financial planning, Best Threads' chief financial officer tasked junior financial analyst Koji with assessing the firm's current stock price. Koji was instructed to weigh both the conservative views of the securities analysts and the more ambitious projections of the company's founder, Johan Wicked. Koji gathered the necessary financial data from 2012 to conduct his analysis. Data Item Earnings Per Share (EPS) Price per share of common stock Book Value of common stock equity Common Stock dividend per share # of share outstanding Required: 2012 Value $6.25 $40.00 $60 million $4.00 2.5 million 1. If the securities analysts are correct and there is no growth in future dividends, what will be the value per share of the Best Threads stock? (Note: Use the new required return on the company's stock here.) 2. (i) If Johan Wicked's predictions are correct, what will be the value per share of Best Threads stock if the firm maintains a constant annual 6% growth rate in future dividends? (Note: Continue to use the new required return here.) (ii) If Johan Wicked's predictions are correct, what will be the value per share of Best Threads stock if the firm maintains a constant annual 8% growth rate in dividends per share over the next 2 years and 6% thereafter? 3. Compare the current (2012) price of the stock and the stock values found in parts a, d, and e. Discuss why these values may differ. Which valuation method do you believe most clearly represents the true value of the Best Threads stock?
Chapter13: Direct Foreign Investment
Section: Chapter Questions
Problem 2IEE
Related questions
Question
Please answer all questions and round off to 2 decimal places
Transcribed Image Text:Question 2
Examine the role of foreign investor participation in the South African bond market as
discussed in the interview. How might behavioural finance theories, such as herding behaviour
and investor sentiment explain the influence of foreign investors on the JSE's bond market
efficiency? Provide examples from the interview to support your analysis.
Section B
In the volatile world of fashion, where intuition and marketing skills are necessary for success,
Johan Wicked succeeded. By 2012, his international casual-wear brand, Best Threads, had
surged to $300 million in sales within a decade. Best Threads' fashion line offered a full range
of clothing for young women, including hats, sweaters, dresses, blouses, skirts, pants,
sweatshirts, socks, and shoes. In Manhattan, Best Threads stores were located every few blocks,
each showcasing a different color scheme-some stores focused entirely on mauve, while
others highlighted canary yellow.
Best Threads' growth was unprecedented, catching even the most optimistic by surprise.
Despite this, securities analysts were skeptical about the company's ability to sustain its growth.
They warned of the intense competition in the fashion industry and suggested that Best Threads
might face stagnation, with no growth in future dividends. In contrast, Johan Wicked remained
confident, predicting a consistent 6% annual growth rate in dividends per share or potentially
8% for the next two years followed by 6% thereafter. His optimism was based on a planned
expansion into European and Latin American markets, which he believed would increase the
company's risk premium on its stock from 8.8% to 10%. The current risk-free rate stood at 6%.
To support the company's long-term financial planning, Best Threads' chief financial officer
tasked junior financial analyst Koji with assessing the firm's current stock price. Koji was
instructed to weigh both the conservative views of the securities analysts and the more
ambitious projections of the company's founder, Johan Wicked. Koji gathered the necessary
financial data from 2012 to conduct his analysis.
Data Item
2012 Value
Earnings Per Share (EPS)
Price per share of common stock
Book Value of common stock equity
Common Stock dividend per share
# of share outstanding
Required:
$6.25
$40.00
$60 million
$4.00
2.5 million
1. What is the firm's current book value per share for Best Threads?
2. What is the firm's current P/E ratio for Best Threads?
3. (i) What is the current required return for Best Threads stock? (ii) What will be the new
required return for Best Threads stock assuming that they expand into European and
Latin American markets as planned?
Transcribed Image Text:Examine the role of foreign investor participation in the South African bond market as
discussed in the interview. How might behavioural finance theories, such as herding behaviour
and investor sentiment explain the influence of foreign investors on the JSE's bond market
efficiency? Provide examples from the interview to support your analysis.
Section B
In the volatile world of fashion, where intuition and marketing skills are necessary for success,
Johan Wicked succeeded. By 2012, his international casual-wear brand, Best Threads, had
surged to $300 million in sales within a decade. Best Threads' fashion line offered a full range
of clothing for young women, including hats, sweaters, dresses, blouses, skirts, pants,
sweatshirts, socks, and shoes. In Manhattan, Best Threads stores were located every few blocks,
each showcasing a different color scheme-some stores focused entirely on mauve, while
others highlighted canary yellow.
Best Threads' growth was unprecedented, catching even the most optimistic by surprise.
Despite this, securities analysts were skeptical about the company's ability to sustain its growth.
They warned of the intense competition in the fashion industry and suggested that Best Threads
might face stagnation, with no growth in future dividends. In contrast, Johan Wicked remained
confident, predicting a consistent 6% annual growth rate in dividends per share or potentially
8% for the next two years followed by 6% thereafter. His optimism was based on a planned
expansion into European and Latin American markets, which he believed would increase the
company's risk premium on its stock from 8.8% to 10%. The current risk-free rate stood at 6%.
To support the company's long-term financial planning, Best Threads' chief financial officer
tasked junior financial analyst Koji with assessing the firm's current stock price. Koji was
instructed to weigh both the conservative views of the securities analysts and the more
ambitious projections of the company's founder, Johan Wicked. Koji gathered the necessary
financial data from 2012 to conduct his analysis.
Data Item
Earnings Per Share (EPS)
Price per share of common stock
Book Value of common stock equity
Common Stock dividend per share
# of share outstanding
Required:
2012 Value
$6.25
$40.00
$60 million
$4.00
2.5 million
1. If the securities analysts are correct and there is no growth in future dividends, what
will be the value per share of the Best Threads stock? (Note: Use the new required
return on the company's stock here.)
2. (i) If Johan Wicked's predictions are correct, what will be the value per share of Best
Threads stock if the firm maintains a constant annual 6% growth rate in future
dividends? (Note: Continue to use the new required return here.)
(ii) If Johan Wicked's predictions are correct, what will be the value per share of Best
Threads stock if the firm maintains a constant annual 8% growth rate in dividends per
share over the next 2 years and 6% thereafter?
3. Compare the current (2012) price of the stock and the stock values found in parts a, d,
and e. Discuss why these values may differ. Which valuation method do you believe
most clearly represents the true value of the Best Threads stock?
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