Hello

Can You please answer Q1 part C , Q3 Part D and E from the attached document? The questions which need to be answered are highlighted in red colour.

I also provide you the previous answers belong to question which will be helpful.

Kind Regards

Question 1 (a) Calculate the value of one share in Cross plc using a Net Asset Valuation approach after taking account of the following information. (i) Tangible assets include buildings at cost of 5m which are now valued at 85m. (ii) A large debtor owing 100m has gone into liquidation and nothing will be received in respect of the amount owing. (iii) The stock is to be written down by 60m. Make adjustments to NAV 0f 420m using new data: +80m, - 100m, -60m Adjusted NAV = 340m, or 56.6p per share. 6 marks (b) Use a Dividend Growth Model (DGM) to estimate the value of one of Cross's shares. Use Gordon growth model P0 = d0(1 + g) (ke - g) To estimate g use : g = ( n d n /d 0 )-1 To estimate ke use CAPM equation: ke = E(Ri) = Rz + i[E(Rm) - Rz] g = 0.082; ke = 0.13 so P0 = 414.7667, i.e. 414.77 pence or 415 pence. 10 marks (c) Evaluate the use of the NAV method of share valuation in the light of problems associated with its use and comment on any difference with the share price suggested by the DGM. Answers should note the large difference between the two valuations and explain what this might mean. For NAV, problems should include the fact that it is based on historical values and does not consider future earnings. Dividend growth approach id forward looking. 9 marks Total Question 3 Forecast data for two companies, Loe plc and Hie plc are given below. 25 marks Economic Conditions Financial Forecast PBIT Capital Employed 10% loan stock equity (1 ord shares) Average p =0.6 Boom p = 0.3 Recession p=0.1 Lo plc Hie plc Lo plc Hie plc Lo plc Hie plc 000 000 000 000 000 000 400 400 1200 1200 100 100 4000 4000 4000 4000 4000 4000 2000 2000 2000 4000 2000 4000 2000 4000 2000 Interest Profit Before Tax Return on Capital Employed Return on Equity (pre-tax) 0 200 0 200 0 200 400 10% 10% 200 10% 10% 1200 30% 30% 1000 25% 50% 100 2.5% 2.5% -100 2.5% -5% (a) Complete the above table. Note ROCE = PBIT/CE; and ROE = PBT/Equity See above - students do not need to write down the interest payments 6 ma rks (b) Calculate the expected value of the percentage pre-tax Return on Equity and the standard deviation of those returns for Lo and Hie Firm Lo E(ROE) = 15.25%; std dev = 9.90% Firm Hie E(ROE) = 20.5%; std dev = 19.80% 6 ma rks (c) Comment on the figures obtained. The main point to note is that Hie has both higher expected returns and faces higher risks because of its gearing level. Best answers will include an assessment of total, business and financial risk. Lo faces business risk only but Hie's shareholders face financial risk as well. Financial risk = Hie's Total Risk - Lo's Risk, i.e. = 9.9% 5 ma rks (d) Briefly discuss the factors which companies should consider when making decisions about the appropriate level of financial gearing for their organisation. 9 marks Consider cost of funds, access to funds, nature of the business, attitudes to risk. (E) outline what factors may effect the level of financial gearing in different companies