Amsterdam Company is preparing a fairness opinion in response to an offer it has received to...
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Amsterdam Company is preparing a fairness opinion in response to an offer it has received to buy the company. The following information was collected: Beta Return on assets Payout ratio Debt ratio Length High-Growth Stable-Growth Stage Stage 1.2 15.0% 25.0% 0.50 3 years 1.0 5.0% 75.0% 0.60 Infinite EPS was CAD 4.50 in the previous year. The risk-free rate is 4.5% and the market risk premium is 5.5%. REQUIRED: 1. Estimate the intrinsic value of Amsterdam's shares using the 2-stage income approach (DDM). 2. What percentage of Amsterdam's intrinsic value is accounted for by its terminal value? Does this create any problems for the valuation? Amsterdam Company is preparing a fairness opinion in response to an offer it has received to buy the company. The following information was collected: Beta Return on assets Payout ratio Debt ratio Length High-Growth Stable-Growth Stage Stage 1.2 15.0% 25.0% 0.50 3 years 1.0 5.0% 75.0% 0.60 Infinite EPS was CAD 4.50 in the previous year. The risk-free rate is 4.5% and the market risk premium is 5.5%. REQUIRED: 1. Estimate the intrinsic value of Amsterdam's shares using the 2-stage income approach (DDM). 2. What percentage of Amsterdam's intrinsic value is accounted for by its terminal value? Does this create any problems for the valuation?
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Answer rating: 100% (QA)
To estimate the intrinsic value of Amsterdams shares using the twostage dividend discount model DDM we need to calculate the present value of dividend... View the full answer
Related Book For
Managerial Accounting Tools for business decision making
ISBN: 978-1118096895
6th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Posted Date:
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