c. Your brother, who works in a bank, has recommended to you that you purchase shares in an organization, on the basis of the following information, which he has heard discussed around the office: Total assets have increased by 33 per cent. Revenue has increased by 12 per cent. Profit after tax has decreased by 4 per cent. The dividend per share is 23 cents. The current share price is $8.50, whereas 12 months ago it was $7.50. Would you invest in this organization? What information encourages you to do so, and what reasons might you have for hesitating? What additional information would you like before making this decision, and where might you find that information? 7 c. Universe Ltd. has following information in its financial statements, analysis) Year 0 2 3 5 EBIT ($) 39,886 36,890 37,013 74,263 86,887 Opening PPE (S) 37,521 39,389 40,603 41,392 41,905 Net Working Capital (S) 13,210 16,385 21,447 27,215 24,603 26,644 It will depreciate its fixed assets at 35% of opening balances in each year. Again, it will cost about $15,000 to buy the necessary equipment in each of the next five years. At the end of the fifth year, terminal value will be determined by EV/EBITDA exit multiple and currently industry exit multiple is 8x. Universe Ltd. has cash and debt of $1,39,550 and $30,000 respectively. The relevant tax rate is 25 percent, and the required return is 12 percent. If the company has 20,000 shares outstanding, then calculate its intrinsic value per share using Discounted Cash Flow method. C Amazon had net operating profit after tax (NOPAT) amounted to $18.5 million in the year just ended, and it believes that it will experience a multi-stage growth in its NOPAT due to unstable market condition. According to its forecasts, NOPAT will grow by 8% per year for the first three years, then 6.5% per year for the next 2 years and finally 5% per year forever. To maintain such growth, Amazon will need to make long-term and short-term investment in next 5 years, in addition to its current long-term investment of $2.90m and short-term investment of $0.75m. The expected net investments in Plant, Property & Equipment are S3m., 54.25m. $4.50m, $5.30m and $5.50m during the next 5 years. Moreover, it expects a series of investments in working capital ($0.92m, $1.08m. $1.19m, $1.53m & $ 1.75m) in next 5 years. The change in net working capital was $.012m in the year just ended. The book value of equity and debt are $120 million and $40m respectively. The firm has cash of $10m and the number of outstanding shares is Sm. Its systematic risk is 1.75 when measured against American market. The dollar-risk free rate is 4% and the return in the American stock market is 10%. Amazon's pretax borrowing cost in New York on new long- term dollar-denominated debt is 7%. Interest payments are tax deductible in USA at the K marginal corporate tax rate of 21%. According to Economic Vaiue Added method, what is the maximum price you will offer to buy Amazon's stock? 2080 d Below the income statement and balance sheet for ABC Ltd.: Income Statement Balance Sheet BDT in '000 BDT in 4000 Sales 4800 Assets Cost of goods sold 4070 Current assets 1760 Gross margin 730 Net fixed assets Operating expenses 400 Total assets 38410 Operating income 330 Liabilities & equity Interest expense 110 Current liabilities 1260 Earnings before taxes 220 Long term liabilities 1150 Taxes 80 Common equity 1430 Net income 149 Total liability & equity 3840 Required: Prepare a common size income statement, common size balance sheet and calculate the return on equity (ROE) and prove it (ROE) by using extended DuPont system, b. is 5 Valuations? expected to generate the Saudi Riyal (SRs) cash flows of -SR350,000, SR100,000, SR250,000 and SR400,000 respectively in year 0, 1, 2, 3. Inflation is expected to be 6% in Saudi Arabia for the next three years In Bangladesh, Inflation is expected to be 8%. The appropriate discount rate for projects of similar risk in Bangladesh is 12.20% and the appropriate discount rate for projects of similar risk in Saudi Arabia is 10.12%. The current spot rate is 0.04545 riyal per taka. The parity conditions hold. Should Apollo Medical Service expand its business in Saudi Arabiu? Why or why not? Progen C. Northern Lights Incorporated is a Bangladeshi lighting fixtures manufacturer. The 7 Bangladeshi taka risk free rate is 7 percent. The risk premium in Dhaka Stock Exchange (DSE) is 6 percent. Northern Lights buta is 1.5 when measured against DSE, Northern Lights' pretax borrowing cost in Dse on new long-term BDT denominated debt is 10 percent. The debt to equity ratio for Northern Lights is 50 percent. Interest payments are tax deductible in BD at the marginal corporate tax rate of 37.5%. Northern Lights could appeal to international investors by listing on the New York stock exchange (NYSE)/ If they chose to do so, Northern Lights could borrow BDT in the New York market at a pretax cost of 8 percent. The BDT risk free rate is 6% in international markets. International investors are willing to tolerate a 60 percent debt-to-equity mix at this cost of debt. With a 60 percent debt to equity ratio, the beta of Northern Lights is 1.2 against the MSCI World index. The risk premium on the world market portfolio is 5 percent. Interest payments are tax deductible in BD at the marginal corporate tax rate of 37.5%. Suppose Northern Lights generated after-tax operating cash flow in the next three years is forecasted to be C$1 million, C$2 million, and CS3 million, respectively. After that it is expected to grow at a constant rate of 4% perpetually. Should Northern Lights finance its project domestically (segregated market)? Or internationally integrated market)? How much Northern Lights can change its value using integrated market over separated market? THE END