XYZ Public Company Limited expects that the company will have a constant growth (g) at 3% per
Question:
- XYZ Public Company Limited expects that the company will have a constant growth (g) at 3% per annum. CEO would like to know the fundamental value of the company's share. As a CFO, please prepare the share valuation based on the following methodologies and assumptions: (10 points)
- Market Comparable Method (P/E ratio)
Assumptions for CAPM r = Rf + (Rm-Rf)*b
- Average return of the stock market is 10% per annum ....(Rm)
- 30 years Government Bond yield = 3.5% .....(Rf)
- b (beta) of XYZ stock = 1.2 ......(b or beta)
1.1 Dividend Growth Model
a. Please find Cost of Equity by using the CAPM model
r = ____________%
Share Price Valuation (Dividend Growth Model)
The Company paid dividend at 2 Baht/Share in 2018.
b. Dividend per share for 2019 (D1) = _________Baht/Share
c. Market Value per Share (Po) = _________Baht/Share
Formula: Po = D1 / (r - g)
- The company forecast to have an Earning per Share (EPS) (or Net Profit/Share) for 2019 = 2.5 Baht/Share.
- P/E Ratio of the Industry = 15 times
- P/E Ratio of the comparable stocks are as follows:
- Stock A: P/E = 15 times
- Stock B: P/E = 17 times
- Stock C: P/E = 16 times
- Stock D: P/E = 17 times
d. Please find the market share price for XYZ stock by using the Market Comparable method: (Price = EPS x P/E)
Market Value per Share = ______________Baht/Share
- Recommendation
If the current market price for XYZ company is 30 Baht/share, what is your recommendation?
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Expert Answer:
a Cost of Equity r using the CAPM model r Rf RmRfb r 35 103512 r 118 b Dividend per share for 2019 A... View the full answer
