Business Valuation of Polo Ralph Lauren Corporation - Mark Moore ...

Sensitivity Analysisg0 0.02 0.03 0.04 0.05Ke 0.04 $44.78 $64.15 $101.900.05 $31.32 $41.88 $51.00 $78.360.06 $27.89 $30.37 $33.74 $39.60 $57.170.07 $23.20 $23.84 $25.16 $26.24 $29.750.08 $19.75 $19.92 $20.05 $20.25 $20.58The Residual Income model was performed by using a Ke of 5.44%. Ouranalysis estimated the price of $31.32 per share compared to the actual price of $38.41per share. From this valuation method, we conclude that the firm is overvalued,because the actual price is more than the estimated price by $7.09. From oursensitivity analysis, it shows that the estimated price per share is morevulnerable to changes in cost of equity than to the changes in the growth rate.Abnormal Earnings Growth ValuationDerived Value as of April 1, 2005= $38.11Sensitivity Analysisg0.01 0.02 0.03 0.04 0.050.04 $37.64 $37.64 $37.64 $37.64 $37.640.05 $37.61 $37.61 $37.61 $37.61 $37.610.06 $37.60 $37.60 $37.60 $37.60 $37.600.07 $37.57 $37.57 $37.57 $37.57 $37.570.08 $37.54 $37.54 $37.54 $37.54 $37.54Our Abnormal Earnings Growth valuation of Polo Ralph Lauren was very close tothe markets current price of $38.39. Polo has just recently started to pay a smalldividends per share, and continually has had strong and steady earnings witch the havebeen reinvesting back into the company. Polo has not offered many dividends since 2000due to the increase in amount of money that they have spent for the increase in internetsales, as well as the increase in foreign markets, such as Europe, and Japan.34