Q1 The following forecast is made for Kallang Ltd: EPS (Earnings per Share) DPS (Dividends per...
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Q1 The following forecast is made for Kallang Ltd: EPS (Earnings per Share) DPS (Dividends per Share) 2021 S 6.00 0.50 2022 $ 7.20 0.50 2023 $ 8.20 0.50 The ROCE (Return on Common Equity) for 2021 is 10% The expected market return is 6% and the risk-free return is 2%. Kallang Ltd has an equity beta of 2. Required: For Kallang Ltd: (a) Compute the AEG (Abnormal Earnings Growth) for 2022 and 2023. (10 marks) (b) Compute the normal forward P/E (price-earnings) ratio expected as at 1 Jan 2021, (1 mark) (c) Explain whether its forward P/E ratio should be higher or lower than the normal forward P.E. (5 marks) (d) Explain whether its PB (Price-to-Book) ratio at 1 Jan 2021 should be higher, lower or equal to 1. (5 marks) (e) Compute its earnings growth rate (ex-dividend) for 2022 and 2023. (2 marks) (f) Compute its earnings growth rate (cum-dividend) for 2022 and 2023 (this assumes shareholders would reinvest the dividends at the required return). (2 marks) Q1 The following forecast is made for Kallang Ltd: EPS (Earnings per Share) DPS (Dividends per Share) 2021 S 6.00 0.50 2022 $ 7.20 0.50 2023 $ 8.20 0.50 The ROCE (Return on Common Equity) for 2021 is 10% The expected market return is 6% and the risk-free return is 2%. Kallang Ltd has an equity beta of 2. Required: For Kallang Ltd: (a) Compute the AEG (Abnormal Earnings Growth) for 2022 and 2023. (10 marks) (b) Compute the normal forward P/E (price-earnings) ratio expected as at 1 Jan 2021, (1 mark) (c) Explain whether its forward P/E ratio should be higher or lower than the normal forward P.E. (5 marks) (d) Explain whether its PB (Price-to-Book) ratio at 1 Jan 2021 should be higher, lower or equal to 1. (5 marks) (e) Compute its earnings growth rate (ex-dividend) for 2022 and 2023. (2 marks) (f) Compute its earnings growth rate (cum-dividend) for 2022 and 2023 (this assumes shareholders would reinvest the dividends at the required return). (2 marks)
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a To compute the AEG for 2022 and 2023 we first need to calculate the expected ROCE for those years ... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1285190907
8th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
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