Exam (elaborations)
INV3701 Assignment 02 S1 2023 (899224) Detailed Solutions
- Course
- Institution
This document contains suggested solutions & detailed explanations. For assistance call or
[Show more]
Seller
Follow
knowledgehut
Reviews received
Content preview
Investments: Equity Asset ValuationINV3701
SEMESTER 1 ASSIGNMENT 2
USE FOUR DECIMAL PLACES IN ALL YOUR CALCULATIONS AND ROUND OFF YOUR DECIMAL
ANSWER TO TWO DECIMAL PLACES.
ASSIGNMENT 02 DUE DATE: FRIDAY 14 APRIL
SEMESTER 1: Unique number 899224
Aim: To evaluate your knowledge of some of the fundamental aspects of equity valuation: application and
process, equity return concepts, the dividend discount model and free the cash flow model, residual income
model and price models. Refer to lessons 1 to 6, which include chapters 1, 3 to 5 and, 7 to 10 in the
prescribed book
Answer the following questions and submit your assignment online at https://my.unisa.ac.za
1
, The following assignment contains 20 multiple-choice questions [20 marks]
Questions
1. An analyst is evaluating a mature company whose current earnings are R550 000 and its retention
ratio is 85%. The company has issued 50 000 shares and is expecting to grow at a rate of 5% per year
for the foreseeable future. The equity risk premium of the company is 10.5%, its beta is 0.75 and the
risk-free rate is 3%. The current value of the share is closest to …
a. R29.46
b. R47.73
c. R166.96
Option a correct
DPS (Do) = payout ratio x EPS
= (1-0.85) * (550 000/50 000)
= R1.65
Re (CAPM) = Rf +β (Rm -Rf)
= 3 + 0.75(10.5) = 10.875%
Vo = D1/Re – g
= 1.65(1.05)/ (0.10875 -0. 05)
= 29.4894
2. Which one of the following non-cash charges will most likely result in a decrease in earnings before
interest and taxes (EBIT)?
a. Loss on sale of an asset.
b. Impairment of intangible assets.
c. Income from reversal of restructuring charges.
Option C correct
Income from restructuring charge reversals and other noncash gains should be subtracted from net income.
2
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller knowledgehut. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $2.96. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
77764 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now