Zahid is interested to buy the stock of PMX Berhad. He has collected the following financial...
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Zahid is interested to buy the stock of PMX Berhad. He has collected the following financial information on PMX: ii) Selected items from income statement (in '000 except per share data) iii) Sales Depreciation EBIT Net income Shares outstanding EPS Selected items from balance (in '000) Total current assets Total assets Total current liabilities Long term debt Total equity Increase in change in working capital (WC-WC-1) Increase in capital spending Change in debt outstanding Payment of cash dividends RM400,000 RM18,500 RM104,200 RM54,000 15,000 RM3.60 Selected items from cash flow (in '000) RM135,000 RM390,000 RM72,000 Calculate the PMX's sustainable growth rate. RM108,000 RM210,000 Zahid assumes that • PMX's earnings and free cash flow to equity (FCFE) is expected to grow at 17% a year for the next three years before stabilizing at an annual growth rate of 8%. • PMX will maintain the current payout ratio. PMX's beta is 1.42, risk free rate is 6% and the market equity risk premium is 7%. Given the above information: i) RM8,600 RM28,000 RM7,000 RM36,400 (3 marks) Calculate the value of a share of PMX's common stock using the two-stage dividend discount model. (8 marks) Calculate the value of a share of PMX's common stock using the two-stage FCFE model. Zahid is interested to buy the stock of PMX Berhad. He has collected the following financial information on PMX: ii) Selected items from income statement (in '000 except per share data) iii) Sales Depreciation EBIT Net income Shares outstanding EPS Selected items from balance (in '000) Total current assets Total assets Total current liabilities Long term debt Total equity Increase in change in working capital (WC-WC-1) Increase in capital spending Change in debt outstanding Payment of cash dividends RM400,000 RM18,500 RM104,200 RM54,000 15,000 RM3.60 Selected items from cash flow (in '000) RM135,000 RM390,000 RM72,000 Calculate the PMX's sustainable growth rate. RM108,000 RM210,000 Zahid assumes that • PMX's earnings and free cash flow to equity (FCFE) is expected to grow at 17% a year for the next three years before stabilizing at an annual growth rate of 8%. • PMX will maintain the current payout ratio. PMX's beta is 1.42, risk free rate is 6% and the market equity risk premium is 7%. Given the above information: i) RM8,600 RM28,000 RM7,000 RM36,400 (3 marks) Calculate the value of a share of PMX's common stock using the two-stage dividend discount model. (8 marks) Calculate the value of a share of PMX's common stock using the two-stage FCFE model.
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Answer rating: 100% (QA)
Answer To calculate PMXs sustainable growth rate we can use the formula Sustainable Growth Rate Retention Ratio Return on Equity The retention ratio is calculated as 1 Payout Ratio Given that PMX will ... View the full answer
Related Book For
Financial Reporting And Analysis
ISBN: 9781260247848
8th Edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
Posted Date:
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