You have been provided with the following information on Monkwood Plc: • Expected dividend payout: 7% Expected growth rate of dividend: 2% ⚫ Risk-free rate of return: 3% • Beta: 0.6 • Average market rate of return: 6% • Annual reported earnings of $60m to perpetuity ⚫ The company has 40m shares in issue The industry average P/E ratio is 12 times • The company has reported assets of $5bn, of which $1.2bn is goodwill, $2.5bn is fixed assets, $0.5bn is stock and $0.8bn is cash The company has reported liabilities of $2bn, of which $1bn is short term debt and $1bn is long term debt Q1) Calculate the required rate of return of Monkwood Plc using the Capital Asset Pricing Model (CAPM) Q2) Calculate Monkwoods plc price/earnings ratio (P/E) Q3) Using your answers to Q1 and Q2 calculate the market price of each Monkwood share Q4) What does the valuation tell you about Monkwood plc particularly when compared with the sector as a whole? Q5) Calculate the net tangible asset value per share of Monkwood plc Q6) State what industry you believe monkwood is likely to operate in and explain the rationale for this conclusion
You have been provided with the following information on Monkwood Plc: • Expected dividend payout: 7% Expected growth rate of dividend: 2% ⚫ Risk-free rate of return: 3% • Beta: 0.6 • Average market rate of return: 6% • Annual reported earnings of $60m to perpetuity ⚫ The company has 40m shares in issue The industry average P/E ratio is 12 times • The company has reported assets of $5bn, of which $1.2bn is goodwill, $2.5bn is fixed assets, $0.5bn is stock and $0.8bn is cash The company has reported liabilities of $2bn, of which $1bn is short term debt and $1bn is long term debt Q1) Calculate the required rate of return of Monkwood Plc using the Capital Asset Pricing Model (CAPM) Q2) Calculate Monkwoods plc price/earnings ratio (P/E) Q3) Using your answers to Q1 and Q2 calculate the market price of each Monkwood share Q4) What does the valuation tell you about Monkwood plc particularly when compared with the sector as a whole? Q5) Calculate the net tangible asset value per share of Monkwood plc Q6) State what industry you believe monkwood is likely to operate in and explain the rationale for this conclusion
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You have been provided with the following information on Monkwood Plc:
• Expected dividend payout: 7%
Expected growth rate of dividend: 2%
⚫ Risk-free rate of return: 3%
• Beta: 0.6
• Average market rate of return: 6%
• Annual reported earnings of $60m to perpetuity
⚫ The company has 40m shares in issue
The industry average P/E ratio is 12 times
• The company has reported assets of $5bn, of which $1.2bn is goodwill, $2.5bn is fixed
assets, $0.5bn is stock and $0.8bn is cash
The company has reported liabilities of $2bn, of which $1bn is short term debt and $1bn
is long term debt
Q1) Calculate the required rate of return of Monkwood Plc using the Capital Asset Pricing
Model (CAPM)
Q2) Calculate Monkwoods plc price/earnings ratio (P/E)
Q3) Using your answers to Q1 and Q2 calculate the market price of each Monkwood share
Q4) What does the valuation tell you about Monkwood plc particularly when compared with the
sector as a whole?
Q5) Calculate the net tangible asset value per share of Monkwood plc
Q6) State what industry you believe monkwood is likely to operate in and explain the rationale
for this conclusion
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