Delta limited is considering the possibility of floating off one of its subsidiaries , Big ice limited in the Ghana stock exchange. The profits of the subsidiary are GHS3.2 million per annum and these are expected to increase at 5% per annum . The book value of the net assets is GHS15 million and the market value is GHS20 million . The proposed annual dividend is GHS0.20 for each of the 10 million shares of GHS0. 50 pesewas The company has a beta of 1.2 . The risk free rate of interest is 8% and the price-earning ratio on the market portfolio is 8. The market rate of return is 15%. Required : a). Estimate the share value of Delta limited using the following methods of share valuation 1) Earning basis 2).Dividend growth valuation 3) Capital asset pricing method b).Discuss the objectives ,strengths and weaknesses of each method used in (a) above.
Delta limited is considering the possibility of floating off one of its subsidiaries , Big ice limited in the Ghana stock exchange. The profits of the subsidiary are GHS3.2 million per annum and these are expected to increase at 5% per annum . The book value of the net assets is GHS15 million and the market value is GHS20 million . The proposed annual dividend is GHS0.20 for each of the 10 million shares of GHS0. 50 pesewas The company has a beta of 1.2 . The risk free rate of interest is 8% and the price-earning ratio on the market portfolio is 8. The market
Required :
a). Estimate the share value of Delta limited using the following methods of share valuation
1) Earning basis
2).Dividend growth valuation
3) Capital asset pricing method
b).Discuss the objectives ,strengths and weaknesses of each method used in (a) above.
Step by step
Solved in 2 steps with 2 images
