Delta limited is considering the possibility of floating off one of its subsidiaries, Big Ice limited in the Ghana stock exchange. The profits of the subsidiary are GHS3.2 million per annum and these are expected to increase at 5% per annum. The book value of the net assets is GHS15 million and the market value is GHS20 million. The proposed annual dividend is GHS0.20 for each of the 10 million shares of GHS0. 50 pesewas. The company has a beta of 1.2. The risk free rate of interest is 8% and the price-earnings ratio on the market portfolio is 8. The market rate of return is 12.5%. Required: Estimate the share value of Delta limited using the following methods of share valuation 1) Earning basis 2).Dividend growth valuation 3) Capital assets pricing model

Delta limited is considering the possibility of floating off one of its subsidiaries, Big Ice limited in the Ghana stock exchange. The profits of the subsidiary are GHS3.2 million per annum and these are expected to increase at 5% per annum. The book value of the net assets is GHS15 million and the market value is GHS20 million. The proposed annual dividend is GHS0.20 for each of the 10 million shares of GHS0. 50 pesewas. The company has a beta of 1.2. The risk free rate of interest is 8% and the price-earnings ratio on the market portfolio is 8. The market rate of return is 12.5%. Required: Estimate the share value of Delta limited using the following methods of share valuation 1) Earning basis 2).Dividend growth valuation 3) Capital assets pricing model

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 8P

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