Consider the following information regarding Sensation Ltd, a listed company on ASX in Australia. Year 0 Year 1 Year 2 EPS 1.61 1.79 DPS 0.64 0.75 Book Value of Share 22.00 Required Equity Return 6% Share Price on ASX 23.80 Required: a) Assuming Sensation will close operations in 2 years’ time, value an ordinary share in this company using the Residual Income Method. b) Is Sensation Ltd fairly valued on the ASX? Please explain fully your response.
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Consider the following information regarding Sensation Ltd, a listed company on ASX in Australia.
|
|
Year 0 |
Year 1 |
Year 2 |
|
|
EPS |
|
1.61 |
1.79 |
|
|
DPS |
|
0.64 |
0.75 |
|
|
Book Value of Share |
22.00 |
|
|
|
|
Required Equity Return |
6% |
|
|
|
|
Share Price on ASX |
23.80 |
|
|
|
Required:
a) Assuming Sensation will close operations in 2 years’ time, value an ordinary share in this company using the Residual Income Method.
b) Is Sensation Ltd fairly valued on the ASX? Please explain fully your response.
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