FIN3701 (Financial Management) Assignment 2 Due 24th April 2024. Answers are detailed with explanations provided. Get that DISTINCTION with ease! Book was also consulted ensuring accuracy. Gitman, L.J. Principles of Managerial Finance. Global & Southern African Perspective.
FIN3701 ASSIGNMENT 2 (505104) | DUE: 24TH APRIL 2024
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1.2 Should Bonga purchase Titan Mining Corporation shares to include in his
investment portfolio? Provide reasons for your answer.
(Answer)
Bonga should avoid investing in ordinary shares of Titan Mining Corporation as their
share price exceeds R52.00.
Explanation to help you understand this answer:
Bonga's decision on whether to invest in shares from Titan Mining Corporation
should be influenced by more than just the current share price being higher than
R52.00. Here are some factors to consider:
1. Valuation Relative to Market: The current price of a share doesn't
necessarily indicate whether it's overvalued or undervalued. Bonga should
look at the price relative to earnings (P/E ratio), growth prospects, and
compare these metrics to other companies in the same sector. If Titan
Mining's P/E ratio is significantly higher than its peers without a justifiable
reason (like superior growth or profitability), it might indeed be overpriced.
2. Company Fundamentals and Performance: Beyond the stock price, Bonga
should consider the fundamentals of Titan Mining Corporation. This includes
its financial health (debt levels, cash flow, profitability), management quality,
and its operational efficiency. Robust fundamentals might justify a higher
stock price.
3. Market Conditions and Economic Factors: The mining sector can be highly
sensitive to economic cycles, commodity prices, and regulatory changes. If
the market conditions are unfavorable, or if there's instability in the
commodities market, this could negatively impact Titan Mining's future
performance and stock price……
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