+ Your employer would like to know whether Felix plc, is a good investment opportunity or...

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+ Your employer would like to know whether Felix plc, is a good investment opportunity or not. Felix plc is computer manufacturing company with 120 million shares outstanding and 6% cost of equity. In 2020, the firm's profits available for shareholders were 230m while its opening net book value in 2021 was 740m. Moreover, Felix's forecast revenue for 2021 is 310m and is expected to grow by 18% per year in 2022 and 2023. The net operating margin of the company, for the years 2021 - 2023, is expected to be 40% and its post 2023 future growth of residual earnings is expected to be 4% per annum. Felix does not plan to pay dividends in the future and has a financial year-end of 31 December. < Additionally, you have also been provided with the following information regarding Felix plc's main competitors for the year-end of 31 December 2021: < ABC plc XYZ plc LMN plc < KZW plc Price (pence) < 220 125 200 186 Earnings (m) < 130 900 -650 212 Book value (Em) < 310 270 325 595 Turnover (m) < 1,160 800 590 1,300 Number of shares (m) < 690 490 790 1,680 0 REQUIRED: < a) Estimate the value of Felix plc's share price as of 1 January 2021 using the Residual Earnings Valuation Model. < (12 marks) < b) Estimate the value of Felix plc's share price as of 1 January 2021 using the method of comparables. (8 marks) < c) Outline the limitations of the "Residual Earnings Valuation Model" and the "Comparables method" in valuing a firm's equity and explain which of these two approaches would you prefer and why? wwwwwwwwwwwww (exam continues overleaf) + Your employer would like to know whether Felix plc, is a good investment opportunity or not. Felix plc is computer manufacturing company with 120 million shares outstanding and 6% cost of equity. In 2020, the firm's profits available for shareholders were 230m while its opening net book value in 2021 was 740m. Moreover, Felix's forecast revenue for 2021 is 310m and is expected to grow by 18% per year in 2022 and 2023. The net operating margin of the company, for the years 2021 - 2023, is expected to be 40% and its post 2023 future growth of residual earnings is expected to be 4% per annum. Felix does not plan to pay dividends in the future and has a financial year-end of 31 December. < Additionally, you have also been provided with the following information regarding Felix plc's main competitors for the year-end of 31 December 2021: < ABC plc XYZ plc LMN plc < KZW plc Price (pence) < 220 125 200 186 Earnings (m) < 130 900 -650 212 Book value (Em) < 310 270 325 595 Turnover (m) < 1,160 800 590 1,300 Number of shares (m) < 690 490 790 1,680 0 REQUIRED: < a) Estimate the value of Felix plc's share price as of 1 January 2021 using the Residual Earnings Valuation Model. < (12 marks) < b) Estimate the value of Felix plc's share price as of 1 January 2021 using the method of comparables. (8 marks) < c) Outline the limitations of the "Residual Earnings Valuation Model" and the "Comparables method" in valuing a firm's equity and explain which of these two approaches would you prefer and why? wwwwwwwwwwwww (exam continues overleaf)