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INV3701-25-EX10
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Which of the following statements is the accurate about the impact of an increase in leverage on a firm’s free cash flow to equity (FCFE)?
Diamond Ltd has a return on equity (ROE) of 36% and an equity risk premium of 6.10%, respectively. Its shares are currently selling for R59.36. The company reported trailing 12-month earnings per share of R3.84 and paid dividends of R1.42 per share. The profit margin on sales is 24.10%. The table below provides Diamond Ltd’s estimated sensitivities to the Fama-French factors, along with the corresponding risk premiums for each factor.
|
Factor sensitivity
|
Risk premium (%)
|
Market factor
|
0.86
|
6.4
|
Size factor
|
-0.25
|
1.2
|
Value factor
|
-0.32
|
1.4
|
Based on Diamond Ltd’s expected style characteristics and its factor sensitivities, the company is a … .
Which of the following statements regarding the models used to estimate the required return is
Use the following information on Ngwenya Corporation
The risk-free interest rate is 9% and the
expected rate of return on the market portfolio is 15%. Ngwenya Corporation, a
South African software firm, has a beta coefficient of 1.1. The company pays out 40% of its earnings as
dividends, and its most recent earnings were R10 per share. Dividends have just been paid and are
expected to be paid annually. It is assumed that Ngwenya will earn a 20% return
on equity (ROE) on all reinvested earnings to infinity. What is the intrinsic
value of Ngwenya Corporation’s share?
Calculate the ex-ante alpha of PWS.
Use the following information on PWS Insurance to answer question 5 and 6.
John Mayor, an analyst, is reviewing his valuation of PWS Insurance (PWS). He has gathered the following information and made several assumptions regarding the company.
·
·
· In addition to fully correcting the difference between PWS’s current market price and its intrinsic value, Mayor also projected a price appreciation of R3.77 and cash dividend of R0.71 over the next year.
·
Calculate Mayor’s expected holding period return on PWS.
Safari Aerospace is a publicly traded firm that seeks opportunities to enhance internal growth by acquiring smaller companies that possess innovative technologies, enabling it to offer unique products and services. The manager of this firm has recently asked his acquisition team to consider purchasing a controlling interest in two software application firms. Which of the following models is the most appropriate for Safari Aerospace’s valuation of the software firms?
Which one of the following options is not an input used to estimate the equity risk premium based on the Gordon growth model?
The value of a specific buyer taking into account potential synergies, based on the investor’s requirements and expectations, is referred to as … value.
Baba Ltd is a mature firm that is profitable but operates outside the economy’s fastest-growing industries. Its investors seek a minority stake in the firm. Baba Ltd’s analysts have a ten-year history of the firm’s paying regular annual dividends. Which of the following models is most appropriate