KMBSolution14 - Kimberly-Clark Corporation (KMB) Solution...

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Kimberly-Clark Corporation (KMB) Solution to Continuing Case, Chapter 14 TRACKING THE PRICE AND VALUE HISTORY 2004 2003 2002 2001 2000 dps 1.6 1.36 1.2 1.12 1.08 Price 65.0 59.0 47.8 59.3 69.5 Return 12.88% 26.28% -17.37% -13.06% 17.63% ReOI 1,106 991 992 1,051 1,272 AOIG 115 -1 -59 -221 144 The return for each year is (Change in price + Dividends)/Beginning price Total return over the 5 years = (65 + 1.6 + 1.36 + 1.3 + 1.12 + 1.08 - 60)/60.0 = 18.93% Average return is 3.53% per year. In Chapter 3 we calculated a required equity return of 8.9% (which is 53.2% over five years). Clearly, KMB delivered an actual return less than this. As noted in Chapter 13 of the Case, the core residual operating income remained fairly constant over the five years. So the market’s pricing of KMB shares over the five years makes sense: With no increase in ReOI (value added), there was little increase in share price. Was the enterprise P/B in 1999 justified, after the fact? Equity value in 1999 = $60.00 × 540.6 million shares = $32,436 million
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This note was uploaded on 10/07/2010 for the course ECTCS ec12947322 taught by Professor Johnathayeri during the Spring '10 term at Life.

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KMBSolution14 - Kimberly-Clark Corporation (KMB) Solution...

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