, , , , ,

[SOLVED] ACF5130 Week 11 Valuation Theory 2SPSS

$25

File Name: ACF5130_Week_11_Valuation_Theory_2SPSS.zip
File Size: 357.96 KB

5/5 - (1 vote)

ACF5130 Financial statement analysis and business valuation

Week 11: Valuation Theory 2

Discussion Question 1: Estimating Residual Income

Use the following details to estimate the residual income of TCBH Group for the year ended 31 December 2023. TCBH Group had a book value of equity of $127,650 on 31st December 2023.

Net Income ($million)                          8,900

Book Value of Equity ($ million)         127,650

Cost of Equity (%)                                5.25

Discussion Question 2: Residual Income Valuation

The following exhibit (all figures in $ million) shows the Balance Sheets of XYZ Inc for the years ended 31 December 2022 and 31 December 2023 respectively.

Sales revenue was $3,726 million. Sales revenue is forecasted to grow at a 6% rate per year in the future, on a constant asset turnover of 0.65. Operating profit margins of 14% are expected to be earned each year. Further, financial assets and financial liabilities will grow at 10% annually, and accounts payable will grow at 6% until 2028. Assume that the terminal growth rate of residual income is 1% and that XYZ Inc has a current WACC of 6%. XYZ Inc has 1,289 million shares outstanding.

Required:

1. Forecast the residual income up to 2028.

2. Estimate the terminal value.

3. Estimate the share price of XYZ Inc.

Discussion Question 3: Relative Valuation

PGB Retail Ltd is considering listing on the Imaginary Stock Exchange. PGB Retail Ltd operates a chain of department stores in Imaginaryland. It is planning to issue 1,250 million shares in the IPO and is considering an IPO price of I$1.42 per share. Currently, there are two listed department stores in Imaginaryland – AnythingUWant Inc, and UllFindItAll Ltd. Their current P/E ratios are 6.80 and 7.20 respectively and their P/B ratios are 2.80 and 3.20 respectively. PGB Retail Inc disclosed its most recent earnings as I$250 million. It has a current equity base of I$600 million.

Based on the above information, comment on the IPO price of PGB Ltd.

Discussion Question 4: Relative Valuation

Wefly Ltd. has a current P/E ratio of 7.42. The industry average is 7.50. Assume that Wefly Ltd has stable earnings and its interest coverage ratio is 5.30. Wefly Ltd has a current cost of equity of 9%. Based on this information, comment on whether Wefly Ltd is overvalued, undervalued or fairly priced. The forward P/E ratio of Wefly Ltd is 6.90.

Discussion Question 5: Growth Rate

Metcash Ltd’s current share price is $3.84. It paid dividends per share of $0.22 and its EPS was $0.27 in the last financial year. It’s current P/E ratio and cost of equity (Finbox) are 13.71 and 8.26% respectively. Metcash Ltd has a current ROE of 24.62%. Using this information, estimate the market’s expected growth rate for Metcash Ltd’s earnings. What is the maximum P/E ratio that Metcash Ltd can sustain given its existing capital base?

Discussion Question 6: PEG Ratio

The Table below shows the average P/E ratios, expected 5-year earnings growth rates, and PEG ratios of some industries in the US as of January 2024.

Required:

• Analyse the relation between the PE ratio and PEG ratio

• Analyse the relation between the expected earnings growth rate and PEG ratio

• How would you characterise the relation between the PEG ratio and industry risk (measured by earnings volatility)?

Reviews

There are no reviews yet.

Only logged in customers who have purchased this product may leave a review.

Shopping Cart
[SOLVED] ACF5130 Week 11 Valuation Theory 2SPSS[SOLVED] ACF5130 Week 11 Valuation Theory 2SPSS
$25