Question

In: Accounting

Mr Jhon who is a CFO of your company asks you to compute intrinsic value of...

Mr Jhon who is a CFO of your company asks you to compute intrinsic value of ABC Ltd. The pertinent financial information about ABC Ltd. are presented below:

      

2009

2010

2011

2012

2013

Net income (loss)

($3,600)

($1,040)

$10,736

$8,928

$10,978

Beginning book value of equity (1.1.2009)

60,000

Ending Book value

?

?

?

?

?

Additional information:

1- Expected dividend payment is $6,000 per year for all the future years

2- Cost of equity is 10%

3- The current stock price is $10.50 per share with 10,000 shares outstanding.

Required

1-Calculate ABC Ltd.’s abnormal earnings for each of the years from Year 2009 to Year 2013. Use the abnormal earnings model to estimate the intrinsic value of the company.

20The current stock price is $10.50 per share with 10,000 shares outstanding. Critically evaluate whether the firm’s stock is undervalued/overvalued.

Solutions

Expert Solution

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Mr Sultan who is a CFO of your company asks you to compute intrinsic value of...
Mr Sultan who is a CFO of your company asks you to compute intrinsic value of ABC Ltd. The pertinent financial information about ABC Ltd. are presented below:        2009 2010 2011 2012 2013 Net income (loss) ($3,600) ($1,040) $10,736 $8,928 $10,978 Beginning book value of equity (1.1.2009) 60,000 Ending Book value ? ? ? ? ? Additional information: 1- Expected dividend payment is $6,000 per year for all the future years 2- Cost of equity is 10% 3- The...
Stock Valuation, the WACC and the CAPM Compute the intrinsic value of two stocks and compare...
Stock Valuation, the WACC and the CAPM Compute the intrinsic value of two stocks and compare the values to the reported market stock price in order to determine if the stock is undervalued or overvalued.    You should do the following: Select any two U.S. public companies that pay dividends (required to use the dividend discount model) Compute each stock’s required rate of return using the Capital Asset Pricing Model. Compute the current period WACC for the selected firms Compute the...
your boss has asked you to estimate the intrinsic value of the equity for Google, which...
your boss has asked you to estimate the intrinsic value of the equity for Google, which does not currently pay any dividends. You are going to use an income approach and are trying to choose between the free cash flow to equity (FCFE) approach and the dividend discount model (DDM) approach. Which would be more appropriate in this instance?why? What concerns would you have in applying either of these valuation approaches to a company such as this?
You are preparing to discuss borrowing needs with your bank's loan officer who asks you to...
You are preparing to discuss borrowing needs with your bank's loan officer who asks you to prepare pro-forma financial statements. Below are the financial statements for the year just ended. Your sales department is projecting a 40% increase in sales. Days sales outstanding are expected to improve to 90. With respect to inventory and accounts payable, assume that purchases will be $9,200,000 and cash payments will be $9,000,000. Operations are running at 75% of capacity and have recently been streamlined....
You are preparing to discuss borrowing needs with your​ bank's loan officer who asks you to...
You are preparing to discuss borrowing needs with your​ bank's loan officer who asks you to prepare​ pro-forma financial statements. Below are the financial statements for the year just ended. Your sales department is projecting a 21​% increase in sales. Days sales outstanding are expected to improve to 45 days. With respect to inventory and accounts​ payable, assume that purchases will be ​$9 comma 450 comma 100 and cash payments will be ​$8 comma 505 comma 090. The Company expects...
You are preparing to discuss borrowing needs with your​ bank's loan officer who asks you to...
You are preparing to discuss borrowing needs with your​ bank's loan officer who asks you to prepare​ pro-forma financial statements. Below are the financial statements for the year just ended. Your sales department is projecting a 32​% increase in sales. Days sales outstanding are expected to improve to 45 days. With respect to inventory and accounts​ payable, assume that purchases will be ​$10,890,000 and cash payments will be ​$9,801,000. The Company expects to invest ​$1,670,000 ​(net of​ depreciation) to expand...
You are the CFO of MacroWare Company. Your company’s stock is traded in the NYSE. Your...
You are the CFO of MacroWare Company. Your company’s stock is traded in the NYSE. Your company wants to invest in a telecommunication technology. You were told by the operation and marketing departments that the project is very promising. You are considering the finance department’s suggestion to issue stocks to finance the project.    As a leader of the company, your objective is supposed to _____.   a. maximize the company’s earnings b. maximize the company’s earnings per share c. maximize...
You are the CFO of a company: What are the important assumptions that underlie your projections?...
You are the CFO of a company: What are the important assumptions that underlie your projections? These assumptions may be associated with both external or internal factors.
Assuming that you are the controller for a publicly traded company, your CFO has asked you...
Assuming that you are the controller for a publicly traded company, your CFO has asked you to prepare a presentation for the accounting department personnel and the public auditors about the importance of the SOX Act and the requirements and responsibilities that the Act establishes for the auditors in charge of an annual audit. After the presentation, the CFO wants all accounting personnel and public accounting auditors to understand the regulations and guidelines established by the SOX Act and also...
Assuming that you are the controller for a publicly traded company, your CFO has asked you...
Assuming that you are the controller for a publicly traded company, your CFO has asked you to prepare a presentation for the accounting department personnel and the public auditors about the importance of the SOX Act and the requirements and responsibilities that the Act establishes for the auditors in charge of an annual audit. After the presentation, the CFO wants all accounting personnel and public accounting auditors to understand the regulations and guidelines established by the SOX Act and also...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT