BWFF2043 ADVANCED FINANCIAL MANAGEMENT GROUP ASSIGNMENT (10%) TASK 1 (5%) Shazz Corporation manufactures electrical equipment in Johor Bahru. Shazz has experienced rapid growth because of energy efficiency of its systems. Shazz Corporation is equally owned by Shahrin and Zarina. The original agreement between them gave each 50,000 shares of stock. In the event either wished to sell the stock, the shares had to be offered to the other at a discount price. Although neither of them wants to sell any shares at this time, they have decided they should value their holdings in the company for financial planning purposes. To accomplish this, they have gathered the following information about their main competitors. Shazz Competitors Jaya Cooling Corporation Mutiara Heating Corporation Setara Corporation Industry average EPS RO.83 RM1.33 (RMO.47) RO.56 DPS RO.17 RM0.53 R0.54 RMO.42 Stock Price RM15.19 RM12.49 RM48.60 RM25.43 11% 15% 15% 13% ROE Required rate of return 10% 13% 12% 11.67% Setara Corporation's negative earnings per share were the result of an accounting write-off last year. Without the write-off, EPS for the company would have been RM2.34. Last year, Shazz had an EPS of RM4.32 and paid a dividend to Shahrin and Zarina of RM54,000 each. The company also had a return on equity of 25 percent. They believe a required return for the company of 20 percent is appropriate. QUESTIONS: 3. What is the industry average price-earnings ratio? What is Shazz price- earnings ratio ? Comment on any differences and explain why they may exist. 4. Assume the company's growth rate declines to the industry average after five years. What percentage of the stock's value is attributable to growth opportunities Assume the company's growth rate slows to the industry average in five years. What future return on equity does this imply? 5