Bvfa

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Table of Contents 1. Perspective analysis ………………………………………….2 2.1 Forecasting……………………………………………….2 2.2 Valuation …………………………………………………3 2.3 Sensitivity analysis……………………………………….4 2. Application……...…………………………………………….4 3.4 Challenges and opportunities…………………………..4 3.5 Recommendations……………………………………….5 Reference List…………………………………………………….6 Appendix………………………………………………………….7 1.Prospective Analysis Based on the reformatting financial statement, this report will use the forecasting template designed by Nissim and Penman (2001) to forecast the future financial performance of David Jones. The valuation of the firm is provided subsequently and the underlying key assumptions are considered for…show more content…
From FY2013, DJS focused on improving its profit margins. It has reduced the depth and breadth of its discounting to a sustainable level and ceased lower profit margin categories such as DVDs, music and electronic games in order to boost gross profit margin (Janda, 2013). Moreover, the negotiations for cost price harmonization have helped the company to maintain the profit margin percentage (David Jones, 2013). * Net Dividend Payout It is assumed that the dividend payout ratio will be maintained at the high and stable level of 85% in average. This prediction is in consistent with the Board’s undertaking to pay dividends of not less than 85% of profit after tax and the growth od Dividends in line with profit after tax (ASX, 2012). * Cost of Debt & Cost of Equity The rate applied to determine the cost of debt should be the current market rate the company is paying on its debt. The forecasted cost of debt after tax is defined as 5%. Based on the Capital Asset Pricing Model (CAPM), where: Cost of Equity (Re) = Rf + Beta (Rm-Rf), DJS has an estimated cost of equity of approximately 13% (4.5% + 1.38 * 6%), representing a risk free rate of 4.5%, the beta of 1.38 sourced from Aspect Fin Analysis, and the market premium of 6%. (Table 2) 1.2 Valuation The purpose of undertaking the business analysis is to help in the valuation and future decision-making. To convert a forecast into an estimate of the value of the company, in this

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