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QUESTION THREE Summarise four reasons why financial analysts prefer to use price to book (P/By value as a valuation measure in equity analysis. (1 marks) Sohala Limited is sensitive to the economic cycle. Job Chege, an equity analyst at Blue Chip Capital postulates that the six years ciding 2017 reflect a business cycle for the company, Ife has collected the following data about the company Year 2012 2013 2014 2015 2016 Adjusted carings per share (EPS)(Sh) 130 2.63 1.30 3.25 1.00 Return on equity (ROD) (.) 0.13 0.72 0.18 0.12 Book value per share (BVPS) (Sh.) 32 The market price per share (MIS) of Salala Limited is Sh. 30, Required: Normalised EPS for Sahala Limited, (2 marksi Price to earnings (IE) ratio based on average ROI method (2 marks) (c) Suggest three measures that equity managers could undertake to increase cash flow return on investment (CFROI). (3 marks) (di XYZ Limited has invested Sh. 100 million capital in assets. The following information is provided: The lim's after-tax operating income on assets is Sh.15 million. This value is expected in he sustained in the future. 1 The company's cost of capital is 10". per annum and is projected to remain constant in the forcein in the future. 3. The firm is expected to make investments of Sh.10 million at the beginning of each of the nett Di each of fties All assets and investments are expected to have infinite life, Thur, the assets in place and itsets in placured made in the first five years will have a return of 15ta per annum in perpetuity. with no gerentity. with 5. After year live, the company will continue to make investment which will grow at which will grow The new investment is expected to have a return on capital of HI", which will also be which will also Required: (1) The value of the firm using the counomic value added (EVA) approach, (2 marbach (3 murk's) The value of the firm using the market value added (MVAJ approach. Ile proach 12 marks) Comment on your results in (dj to) above. (2 marks) the a Total: 20 marks)