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: Determine the total value of UFSK limited
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: Determine the total value of UFSK limited
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
- 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 |
|
|
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:
Determine the total value of UFSK limited
Expert Solution
Step 1
Given information:
Number of outstanding shares 100,000
Earnings 300,000
Retention ratio 60%
91-day Treasury bill rate is 6%
Market risk premium is 8%
UFSK beta is 1.2
Step 2
Calculation of market value of UFSK limited equity:
Excel workings:
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