BUS3026W_2009+Tutorial3+with+Memo - School of Management...

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School of Management Studies BUS3026W Finance II 2009 Tutorial Due: Week beginning 9 March ______________________________________________________________ Please show all your calculations. 2 Marks will be subtracted for every question not properly attempted. P/Es and other multiples need to be shown to the first decimal only, while other numbers (NAV, earnings per share etc.) need to be shown to two decimals. Question 1: The table below shows relevant data for companies X, Y and Z. There is no preference equity. X Y Z 2008 Pre-tax Earnings (R mn) 355 267 1244 Equity (R mn) 1305 768 5845 Current Share Price (cps) 1545 2415 1807 Payout Ratio 40 25 60 Effective Tax Rate (%) 30 15 32 Shares in issue (mn) 210 88 385 Company X is a retail company. A fair P/E for the retail sector is 12. Company Y is a 2-year old biotechnology company. A fair P/E for biotechnology is 14. Company Z is a 120-year old multinational resources (mining) company. A fair P/E for the cyclical commodity sector is 8.4. 1.1 For each company calculate: a) The company’s sustainable growth rate (g) [5 marks] b) The PEG ratio (using trailing earnings). [5 marks] 1.2 Using only the P/E values, indicate whether each of the shares is fairly valued, overvalued or undervalued.
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This note was uploaded on 06/01/2011 for the course FIN 3026W taught by Professor Drtoerien during the Summer '09 term at University of Cape Town.

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BUS3026W_2009+Tutorial3+with+Memo - School of Management...

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