FIN1FOF – FUNDAMENTALS OF FINANCE SEMESTER 2, 2014 ASSESSMENT TASK three
Project Query 2 (Inventory Valuation)
(Submit at your tutorial class in week 7; Be aware: Late submission – Zero Mark) Query 1 (65 marks)
ASAM Ltd. has simply developed a brand new photo voltaic panel machine that may generate 200 p.c greater than any photo voltaic panel at the moment in the marketplace. In consequence, ASAM is predicted to expertise a 16% annual development charge for the following 5 years. By the top of 5 years, ASAM’s development charge will decelerate to six% per yr indefinitely. Shareholders require a return of 12 p.c on ASAM’s inventory. The latest annual dividend (Dzero), which was paid yesterday, was $2.00 per share.
(a) Calculate ASAM’s anticipated dividends for 2015, 2016, 2017, 2018 and 2019. (b) Calculate the inventory worth at the moment (Pzero).
(c) Calculate the anticipated dividend yield, capital acquire yield in 2015.
(d) Calculate the anticipated dividend yield, capital acquire yield in 2020.
(e) Assume that ASAM’s annual development shall be solely 13% throughout the subsequent 5 years and that the ASAM’s regular development charge shall be solely 5% after 5 years. With out doing calculations, what basic impact would these growth-rate modifications have on the value of ASAM’s inventory.
Query 2 (35 marks)
PP Ltd. expects to have earnings this yr of $four per share. It plans to retain all of its earnings for the following two years. It is going to retain 50% of its earnings in yr three and yr four. It is going to retain 20% of earnings from yr 5. Every year, retained earnings shall be invested in new initiatives with an anticipated return of 25% per yr. Any earnings that aren’t retained shall be paid out as dividends. Assume that every one earnings development comes from the funding of retained earnings. Value of capital is 12%. Calculate the value of PP at the moment.