You are now trying to value Firas Morning Coffee using multiples. A regression of PE...
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You are now trying to value Firas Morning Coffee using multiples. A regression of PE ratios against fundamentals for companies in the sector yields the following:
PE = 2.00 + 2.5 *(Expected Growth rate: next 5 years) 5.0* (Beta)
The R-square (R2) = 50%. Note that the growth rate in the regression was used as a number and not as percentage numbers. For instance, a 10% expected growth rate enters the regression above as 10 (and not .10). Firas Morning Coffee reported earnings per share of $0.60 in the most recent year and the stock currently trades at $12 a share. The beta for the stock is 1.20.
If the market price is right and the sector regression holds, estimate the expected growth in earnings per share for Firas Morning Coffee over the next 5 years. (2 points)
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