You are given the following information regarding UFSK limited, a listed entity.Number of outstanding shares 100 000Earnings 300 000Retention ratio 60%91-day Treasury bill rate 6%Market risk premium 8%UFSK Beta1.2Dividend growth rate stable phase5%Bonds outstanding 5 000Par value per bond1000Semi-annual coupon rate on bonds 6%Bond yield to maturity 8%Bond years remaining to maturity4Corporate tax rate 30%Additional information UFSK limited recently paid a dividendUFSK recently signed a deal and expects a super normal growth in earnings. The company expects earnings to grow by 8% for the first two years then decline by 2% in the following year, there after a stable growth of 5% is expected into the future.Required:As an investment analyst advise your client how much must she expect to pay for UFSK limited stock. Ascertain the market value of UFSK limited equity. Determine the fair value of UFSK limited bond Determine the total value of the company’s debt Determine the total value of UFSK limited

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Answered: As an investment analyst advise your…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 2P

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You are given the following information regarding UFSK limited, a listed entity.

Number of outstanding shares	100 000
Earnings	300 000
Retention ratio	60%
91-day Treasury bill rate	6%
Market risk premium	8%
UFSK Beta	1.2
Dividend growth rate stable phase	5%
Bonds outstanding	5 000
Par value per bond	1000
Semi-annual coupon rate on bonds	6%
Bond yield to maturity	8%
Bond years remaining to maturity	4
Corporate tax rate	30%

Additional information

UFSK limited recently paid a dividend
UFSK recently signed a deal and expects a super normal growth in earnings. The company expects earnings to grow by 8% for the first two years then decline by 2% in the following year, there after a stable growth of 5% is expected into the future.

Required:

As an investment analyst advise your client how much must she expect to pay for UFSK limited stock.
Ascertain the market value of UFSK limited equity.
Determine the fair value of UFSK limited bond
Determine the total value of the company’s debt
Determine the total value of UFSK limited

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