General Telecommunications (GT) is a telecommunications company that wants to position itself as a leading provider...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
General Telecommunications (GT) is a telecommunications company that wants to position itself as a leading provider of a wide range of telecommunication services. GT is currently providing TV, high speed and wireless Internet, and residential home phone services. While GT is currently the market leader in these services, it is planning to acquire a mobile phone services company to complete its range of telecom services and to increase its comparative advantage in the market. After investigating several potential companies, GT feels True Mobile Inc. can be potentially a good acquisition. True Mobile Inc. was founded by two college friends Peter Nash and Ryan Shaeffer, and has remained a privately owned company. The original partnership agreement between the two friends gave each 120,000 shares of stock. As True Mobile is still a private company, its value per share is not publicly available. GT management has gathered the following information about some of True Mobile competitors that are publicly traded: EPS $1.30 $1.2 $1.45 DPS $0.16 $0.12 $0.24 ROE 11% Fox Mobile Inc. Robyn Mobile Corp. 11.5% 12% Blue Jay Mobile Services *These are reported last year EPS, DPS and ROE, EPS is earnings per share, DPS is dividends per share, ROE is the return on equity, ris the required return Stock price $18.32 $12.16 $20.13 r 12% 14% 13% True Mobile Inc. reported an EPS of $4.37 last year and paid a dividend to Peter and Ryan of $230,000 each. True Mobile also reported an ROE of 23 % last year. GT management believes that the appropriate required return for True Mobile is 21%. 1. GT considers acquiring True Mobile and needs to determine the acquisition price. In the valuation analysis, GT assumes True Mobile will continue its current growth rate. What is the value per share for True Mobile stock based on this assumption? 2. True Mobile is an innovative company and has been enjoying technological advantage compared to its competitors. However, due to the fierce competition in the mobile services sector, GT analysts believe True Mobile will only be able to enjoy its current growth for the next 4 years. After the 4 years of high growth period, True Mobile growth will fall back to the average industry growth. Additionally, after more thorough research into True Mobile, GT analysts believe that the recommended required return for True Mobile of 21% is too high and that GT should be using industry average required return for True Mobile. Calculate True Mobile's stock price under these new assumptions. ( 3. Calculate the average P/E ratio for the mobile services sector. Calculate the P/E ratio for True Mobile based on the assumptions in question 2. Based on what we learned in class about P/E ratios, provide comments on and a comparison between the industry average P/E ratio and True Mobile's P/E ratio. 4. Keeping the assumptions that True Mobile's growth rate will fall back to the industry average growth rate after 4 years, calculate True Mobile's long-term ROE. Assume that True Mobile's retention ratio remains constant General Telecommunications (GT) is a telecommunications company that wants to position itself as a leading provider of a wide range of telecommunication services. GT is currently providing TV, high speed and wireless Internet, and residential home phone services. While GT is currently the market leader in these services, it is planning to acquire a mobile phone services company to complete its range of telecom services and to increase its comparative advantage in the market. After investigating several potential companies, GT feels True Mobile Inc. can be potentially a good acquisition. True Mobile Inc. was founded by two college friends Peter Nash and Ryan Shaeffer, and has remained a privately owned company. The original partnership agreement between the two friends gave each 120,000 shares of stock. As True Mobile is still a private company, its value per share is not publicly available. GT management has gathered the following information about some of True Mobile competitors that are publicly traded: EPS $1.30 $1.2 $1.45 DPS $0.16 $0.12 $0.24 ROE 11% Fox Mobile Inc. Robyn Mobile Corp. 11.5% 12% Blue Jay Mobile Services *These are reported last year EPS, DPS and ROE, EPS is earnings per share, DPS is dividends per share, ROE is the return on equity, ris the required return Stock price $18.32 $12.16 $20.13 r 12% 14% 13% True Mobile Inc. reported an EPS of $4.37 last year and paid a dividend to Peter and Ryan of $230,000 each. True Mobile also reported an ROE of 23 % last year. GT management believes that the appropriate required return for True Mobile is 21%. 1. GT considers acquiring True Mobile and needs to determine the acquisition price. In the valuation analysis, GT assumes True Mobile will continue its current growth rate. What is the value per share for True Mobile stock based on this assumption? 2. True Mobile is an innovative company and has been enjoying technological advantage compared to its competitors. However, due to the fierce competition in the mobile services sector, GT analysts believe True Mobile will only be able to enjoy its current growth for the next 4 years. After the 4 years of high growth period, True Mobile growth will fall back to the average industry growth. Additionally, after more thorough research into True Mobile, GT analysts believe that the recommended required return for True Mobile of 21% is too high and that GT should be using industry average required return for True Mobile. Calculate True Mobile's stock price under these new assumptions. ( 3. Calculate the average P/E ratio for the mobile services sector. Calculate the P/E ratio for True Mobile based on the assumptions in question 2. Based on what we learned in class about P/E ratios, provide comments on and a comparison between the industry average P/E ratio and True Mobile's P/E ratio. 4. Keeping the assumptions that True Mobile's growth rate will fall back to the industry average growth rate after 4 years, calculate True Mobile's long-term ROE. Assume that True Mobile's retention ratio remains constant
Expert Answer:
Answer rating: 100% (QA)
To calculate True Mobiles longterm return on equity ROE we need to use the sustainable growth rate f... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
This case was written by Professor Michele Greenwald, Visiting Professor of Marketing at HEC Paris, for use with Advertising and Promotion: An Integrated Marketing Communications Perspective 7th...
-
Subject : Strategic Management in a Global Environment Safaricom: Innovative Telecom Solutions to Empower Kenyans As the largest mobile provider in Kenya, Safaricom has touched the lives of Kenyans...
-
Water flows in a partially full 2-m-diameter circular pipe an average velocity of 2 m/s. If the water depth in the pipe is 0.5 m, determine the flow area, the wetted perimeter, the hydraulic radius,...
-
Calculate the force of gravity that Earth and the Sun exert on each other (Sun's mass is 2.0 10 30 kg; average Earth-Sun distance is 1.5 10 11 m).
-
What are some of the process heat treatments that can be performed without reaustenitizing the material (heating above the A1 temperature)?
-
A hospital operating room needs to schedule three knee surgeries and two hip surgeries in a day. We denote a knee and hip surgery as \(k\) and \(h\), respectively. The number of possible sequences of...
-
Mattel is a U.S.-based company whose sales are roughly two-thirds in dollars (Asia and the Americas) and one-third in euros (Europe). In September Mattel delivers a large shipment of toys (primarily...
-
You invest $3,000 into the S&P 500 stock index for 30 years and earn an 8% compound annual interest rate. Using the following formula FV = PV (1+r) n how much will you have in 30 years?
-
Sendelbach Corporation is a U.S.-based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this wholly owned company operates primarily in...
-
Fifteen years ago a couple purchased a house for $190,000.00 by paying a 20% down payment and financing the remaining balance with a 30-year mortgage at 6.04% compounded monthly. (a) Find the monthly...
-
Criminal Justice organizations need to make changes to meet the needs of a different type of employee entering 21st-century criminal justice organizations. As a professional law enforcement...
-
When customers arrive, they check in with the receptionist , which takes 3 minutes . They then go to the shampoo area, which is staffed with one person and takes 15 minutes . One stylist then takes...
-
Cyclone Grinder Discussion Questions SCM 7870 Supply Chain Project Management Overview: The following case assignment should be completed in your case teams. The write- up should be approximately...
-
One reason to hire a certified public accountant (CPA) firm is to ll of the answers are correct. develop procedures for the accounting of all activities. put all of the statements into a standardized...
-
Essentially is a brief exploration of the primary intersections between the Bill of Rights and the practice of commerce in the United States. The chapter primarily focuses on freedom of religion,...
-
Suppose we're using a DCF model with 10 years worth of projections for a company with a 9.5% cost of capital. We estimate that the company's free cash flow in Year 10 will be $350 million and that...
-
The manager of a local convenience store is expanding his line of small toy items. To price these new items, the manager is looking at the prices being charged by competing retailers in his area. For...
-
Oglesby Service Corporation has three divisions that are treated as profit centers. The Printing division provides services to the other two divisions, as well as to external customers. In the middle...
-
Carter Hopkins Homes engaged in the following activities during the year: Borrowed $600,000 from Marshall Bank Declared and paid dividends on common stock of $28,000 Made a $78,000 annual...
-
Highland Manufacturing produces two products in its Saratoga plant, balzene and galvene. Since it opened its doors in 1965, Highland has been using a single manufacturing overhead pool to accumulate...
-
In the research on leader behaviors, which style of leadership describes the preferred high-high combination? (a) transformational (b) transactional (c) laissez-faire (d) democratic
-
When managers use offers of rewards and threats of punishments to try to get others to do what they want them to do, they are using which type of power? (a) formal authority (b) position (c) referent...
-
In terms of leadership behaviors, someone who focuses on doing a very good job of planning work tasks, setting performance standards, and monitoring results would be described as _________. (a) task...
Study smarter with the SolutionInn App