This assignment .s dos.gned to test students co Topic 2 (Snare Valuation).Pad A Tne dtrectors of...

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This assignment .s dos.gned to test students co Topic 2 (Snare Valuation).
Pad A Tne dtrectors of omega Pto Ornega.) consslems9 maiong a 04 fot. Theta Mc rinetts.). Vol.,. the follovn,nformabon or the Past 4 Team:
ha... per share Pay. ratio (pwer4) Year-end sham price.
2013
2014
2015
2016
10
12
12
13
25
10
13.20
9.00
10.00
:has:. sheet eztrad: Ft¦• WoDer, and egOpMent (PPE) =nt's reoe,ables Others
20
Theta Eiit:ribetho k
Required: mehois:
(2 marks,

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David · Accepted Answer

Part –A  
Theta
Equity Beta 0.7 
Treasury bill Yield(Rf) 5% 
Return on the Market(Rm) 12% 
Prospective EPS 5.36 cents 
Payout ratio 25%
Omega 2013 2014 2015 2016 Average 
Final dividend/Share(cents) 10 12 12 13 11.75 
Payout Ratio (percent) 20 20 30 25 23.75 
Yearend share price 10 13.2 9 10 10.55
EPS = Dividend per share / Payout ratio 
EPS of Omega = 11.75/23.75% 
=49.47 cents 
Price earnings ratio = Market price/ EPS 
= 10.55/.4947 = 21.32 
Answer a. Price of theta = EPS * PE of omega  
 (5.36/100)*21.32= $1.14 
(Divide by 100 because 100 cent = 1 dollar) 
Answer b. 
Dividend = Payout ratio * EPS 
Dividend / Share of Theta = 25%*5.36/100=$0.0134 
Dividend growth rate of Omega = (2016 dividend/2013 dividend)^1/n -1 
 = (13/10)^(1/4)-1 
=6.78% 
Expected return of the theta 
 = Rf+(Rm-RF)*beta 
=5%+(12%-5%)*0.7 =9.9% 
Price of Theta equity = D1*(1+g)/(Ke-g)  
= (0.0134*(1+6.78%))/(9.9%-6.78%) 
=$0.46 
Answer C. 
In Million Value Formula 
Net relaizable value 12 10*(1+20%) 
Other current asset value 4.2 (1+1+2+1+1)*0.7 
Total Asset 16.2 12+4.2 
Bonds 5   
Asset - Liabilty 11.2 16.2-5 
Price per share                                                             $ 1.12  11.2/10
Answer D.  
Dividend Discount model used for the getting all future cash flow of the investors and calculated its 
present value, i.e. what is the current share of the price. 
However,

This assignment .s dos.gned to test students co Topic 2 (Snare Valuation). Pad A Tne dtrectors of omega Pto Ornega.) consslems9 maiong a 04 fot. Theta Mc rinetts.). Vol.,. the follovn,nformabon or the...

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