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INV3701 Assignment 02 Semester 1 & 2 (Both) 2021
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- University Of South Africa (Unisa)
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By: chanellekarime • 3 year ago
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Equity Asset ValuationINV3701
Semesters 1 and 2
Department of Finance, Risk Management and
Banking
IMPORTANT INFORMATION
Please register on myUnisa, activate your myLife e-mail account and make
sure that you have regular access to the myUnisa module.
website, INV3701-2021-S1/S2, as well as your group website.
ASSIGNMENT 02 DUE DATE: 30 JULY 2021
SEMESTER 1: Unique number 673658
SEMESTER 2: Unique number 630200
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 market-based valuation. Refer to lessons 1 to 6 in the study guide, 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.
, The following assignment contains 20 multiple-choice questions. [20 marks]
Questions
1. Which one of the following statements is most correct?
1. FCFF model is an example of a relative valuation model.
2. Free cash flow to the firm is cash flow available only to common shareholders.
3. The value of a firm is equal to the value of the operating assets and the non-operating assets.
Use the following information to answer question 2.
Savanna Limited has free cash flow to the firm (FCFF) and free cash flow to equity (FCFE) of R3.46
and R5.22 million, respectively. The required rate of equity is 10.4% and the weighted average cost
of capital is 16.1%. Savanna Limited has outstanding debt of R11.75 million. The following
information on the growth rates is available:
Growth rate
FCFE 4.5%
FCFF 6.5%
2. Calculate the total value of Savanna’s equity by using the FCFF valuation method.
1. R19.22 million
2. R26.63 million
3. R38.38 million
Value = FCFF1 /Wacc -g
= 3.46(1.065)/0.161-0.065
= R38.38
3. The increase in fixed assets is defined as ...
1. capital expenditure less depreciation.
2. net income less capital expenditure.
3. net income less depreciation less capital expenditure.
2
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