Spring 2005 -Questions for TBS 907 Tutorial 5- Share Valuati

Spring 2005 -Questions for TBS 907 Tutorial 5- Share...

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TBS 907 SPRING 2005 TUTORIAL 5 SOLUTIONS SHARE VALUATION Question 1 There are a number of approaches to the problem of valuing a company that does not have a share price determined in the market place. These include the following: 1. PV of expected future cash flows; 2. Dividend Valuation Model; 3. relevant price to earnings ratio; 4. earnings growth basis/super-profits; 5. Value of net assets. Theoretically the first of these is superior. Unfortunately in this question we do not have sufficient information to be able to adopt this approach. First, we shall estimate using the dividend valuation model. To do this we need to estimate the appropriate cost of equity K e for Satac. We know the share price of Oxclose and so we can establish K e for that company: g P D k e + = 0 1 We need to estimate the next expected dividend. The current is 18.03 cents per share ($12.62 million divided by 70 million shares). The growth in dividends is approximately 8.8% per annum, which gives a D 1 of 19.62 cents. Therefore for Oxclose
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This note was uploaded on 07/10/2009 for the course FIN FIN taught by Professor Dr. during the Spring '09 term at Baptist College of Health Sciences.

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Spring 2005 -Questions for TBS 907 Tutorial 5- Share...

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