Prepare five-year pro forma of earnings based on forecasts

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Nike reported book value per share of $15.93 at the end of its 2008 fiscal year. Analysts were forecasting earnings of $3.90 per share for 2009 and $4.45 for 2010, and were also forecasting a five-year growth rate in EPS of 13 percent per year.

Problem 1: Prepare five-year pro forma of earnings based on these forecasts and convert the forecasts to a valuation with the added forecast that residual earnings will grow at the GDP growth rate of 4 percent per year after 2013. Use a required return of 10 percent in your calculations.

Problem 2: Nike traded at $60 per share at the time. Based on your calculations, do you think Nike is reasonably priced? What does your analysis tell you about the long-run growth rate that the market is forecasting for Nike?

Reference no: EM132684715

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