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Question 3 [13 marks]
From the recently published financial statements for Entroc Ltd you have obtained the following information
Balance Sheet as at 31 March 2011
Long-term Debt $
Bonds: Par $100, semi annual coupon 14% p.a., 6 yrs to maturity 1,000,000
Equity
Preference Shares: Par $10, annual dividend 60 cents per share 100,000
Ordinary Shares: - 1 million issued 2,000,000
TOTAL $3,100,000
Also from the financial markets you have ascertained the following:
Yield to maturity on 6 yr Entroc Ltd corporate bonds: 6% p.a.
Required return on Entroc Ltd preference shares: 9% p.a.
Entroc Ltd ordinary shares last dividend declared $0.20
Forecast future growth rate of Entroc Ltd ordinary share dividend: 5% p.a.
Required return on Entroc Ltd ordinary shares: 12% p.a.
1. Calculate the intrinsic/market valuation on 31 March 2011 of one Entroc Ltd:
(i) bond 这个会
(ii) preference share这个会
(iii) ordinary share. 不会{:4_141:}
2. Calculate the total intrinsic/market valuation on 31 March 2011 of Entroc Ltd’s: 这整个都不会
(i) long-term debt
(ii) preference shares
(iii) ordinary shares.
3. Compare the book and market values for each of the long-term sources of finance currently used by Entroc Ltd and briefly explain why any differences that you observe have occurred.作者: qiuls001 时间: 4-4-2011 04:39
(iii) Ordinary share = Dividend / (required return – dividend growth rate)
= $0.20/ (0.12 – 0.05)
= $2.8571
2 Total intrinsic/market valuation on 31 March 2011 of Entroc Ltd:
(i) (i) Long Term Debt = $1,000,000 /$100 x $139.816
= $71,5226
(ii) Preference share = $100,000 / $10 x $6.6667
= $1,499.9925
(iii) Ordinary share = $2.8571 x 1,000,000
= $2,857,100
3
Intrinsic value($) Book value($)
Long Term Debt
Bonds 1,398,100 1,000,000
Equity
Preference share 66,670 100,000
Ordinary Share 2,857,100 2,000,000
Total 4,321,870 3,100,000
Variance from Book value +1,221,870(39.42%)作者: Yawn 时间: 4-4-2011 06:24
给点lecture slide呗作者: zhucexinxi 时间: 4-4-2011 09:21
1. iii)
Required rate of return = 12%
Growth rate of dividend = 5%
The market value of one ordinary share = D1/(required rate of return - growth rate)
= $0.20 * (1+5%) / (12% - 5%) =$3.00 per share作者: qiuls001 时间: 4-4-2011 09:28
哇。。今天都要交了哦作者: zhucexinxi 时间: 4-4-2011 09:34
1. iii)
Required rate of return = 12%
Growth rate of dividend = 5%
The market value of one ordinary share = D1/(required rate of return - growth rate)
= $0.20 * (1+5%) / (12% - 5%) =$3.00 per share
2. i)
Present value of one bond = present value of bond's face value + present value of total coupons
= $100/[(1+3%)^12] + $7 * [(1-1/1.03^12)/3%]
=$70.1379 + $69.6780
=$139.82
10,000 bonds par $100
Total market value of bonds = 10,000 *$139.82
ii)
Total market value of preference shares
= market value of one preference share * number of shares issued
iii)
Total market value of ordinary shares = $3.00 *1m= $3 m作者: ice~芊芊 时间: 4-4-2011 14:48 回复 2#Yawn