| 2. |
(a) |
Small Events Inc. has recently paid a dividend of Rs. 3.50 per share. The dividends are growing at 10% p.a. and the equity capitalization rate applicable to the company is 12%. Find out the implicit PE ratio if the EPS of the company is Rs. 7. |
6 |
|
(b) |
A share of the face value of Rs. 100 has current market price of Rs. 480. Annual expected dividend is 30%. During the 5th year, the shareholder is expecting a bonus in the ratio of 1:5. Dividend rate is expected to be maintained on the expanded capital base. The shareholder intends to retain the share till the end of the 8th year. At the time the value of share is expected to be Rs. 1,000. Incidental expenses at the time of purchase and sale are estimated at 5% on the market price. There is no tax on dividend income and capital gain. The shareholder expects a minimum return of 15% per annum.
Should he buy the share? What is the maximum price he can pay for the share? Show complete working. |
10 |
| 3. |
(a) |
How would you value a real estate? |
6 |
|
(b) |
When will Economic Value Added increase? |
5 |
|
(c) |
What are the different levels of market efficiency? |
5 |
| 4. |
(a) |
What are the RBI guidelines for valuation of shares in care of disinvestment by foreign investors? |
8 |
|
(b) |
What is the methodology of 'Brand' valuation? |
10 |
| 5. |
(a) |
What is Price-Book Value Ratio? What are the two measurement issues that you have to confront in computing this multiple? How return on equity and cost of equity can influence this ratio? |
10 |
|
(b) |
Xem Ltd. had earning per share of Rs. 11.04 in 2007 and paid a dividend of Rs. 7 per share. The growth rate in earnings and dividends in the long-term is expected to be 5%. The return on equity at Xem Ltd. is expected to be 13.66%. The beta for Xem Ltd. is 0.80 and the risk-free treasury bond rate is 6%, while risk premium is 4%. Based on the information calculate Price to Book Value Ratio. |
6 |
| 6. |
(a) |
In valuating a firm should you use the marginal or effective tax rate? |
5 |
|
(b) |
Smart Air Ltd. is a telecommunications firm that generate Rs. 300 lakh in pre-tax operating income, and reinvested Rs. 60 lakh in the most recent financial year. As a result of tax deferrals, the firm has an effective tax rate of 20%, while its marginal tax rate is 40%. Both the operating income and the reinvestment are expected to grow 10% a year for 5-year and 5% thereafter. The firm's cost of capital is 9% and is expected to remain unchanged over time.
Estimate the value of Smart Air Ltd. using the different assumptions about tax rates.
| (i) | The effective tax rate — 20% is to be considered. |
| (ii) | The marginal tax rate — 40% is to be considered. |
|
11 |
| 7. |
Nimbus Ltd. has 1,000 shares of Rs. 10 each raised at a premium of Rs. 15 per share. The company's retained earnings are Rs. 5,52,500. The company's stock sells for Rs. 20 per share. |
|
|
(a) |
If a 10% stock dividend is declared how many new shares would be issued? What would be the market price after the stock dividend? How would the equity account change? |
6 |
|
(b) |
If the company instead declares a 5 : 1 stock split, how many shares will be outstanding? What would be new par value? What would be the new market price? |
5 |
|
(c) |
Suppose if the company declares a 1 : 4 reverse split, how many shares will be outstanding? What would be the new par value? What would be the new market value? |
5 |
