I'm studying Financial Investment and Portfolio Management please help me this homework Thank you very much Question 1 The market price of an Aspirations Limited share is $25 Its expected rate of return is 8 75 The risk free rate is 1 0 and the market risk premium is 8 What will the intrinsic value of the share be if its beta increases by 10 and all other variables remain unchanged Assume the share is expected to pay a constant dividend in perpetuity (or forever) Question 2 Helen is an analyst working for a securities dealership She needs to do the ordinary share valuation of Fortescue Metals Group (FMG) Limited using dividend discount modelling The most recent FMG dividend is $1 share FMG pays dividends annually and is currently trading ex dividend The company has a trailing Price Earnings ratio (PE) of 7 and a current share price of $25 There is a consensus view that growth in FMGs earnings per share (EPS) will be subdued over the next 2 years due to the steel making sector in China being depressed An EPS growth rate of 2 per year nominal for FMG would seem to be appropriate over the next 2 years according to the dealership For the period after year 2, the dealership thinks 4 5 per year nominal growth is the most likely outcome The dealership also believes there will be no change in dividend payout ratio going forward FMG currently has a beta of 1 05 The current market risk premium is 8 from investing in listed and unlisted products that track the S P300 Accumulation Index in Australia Answer the following questions a)What is the most recent EPS of FMG assuming there is no earnings dilution predicted b)What is the most recent retention (or plowback) ratio of FMG c)If the yield on 10 year Australian government bonds is currently 1 0 , what is your required rate of return as an FMG ordinary shareholder if you base your thinking on the Capital Asset Pricing Model Assume there is no dividend imputation d)What is the intrinsic or fundamental value of the share Assume there is no dividend imputation e)How much is the present value of growth opportunities (PVGO) Question 3 Bonnie Barker, an analyst colleague, is helping you gather data for the equity valuation of a listed company in Australia called Caltex Ltd Bonnie has compiled the following information Current price on the ASX of one Caltex ordinary share $3 Free Cash Flow to the Firm (FCFF) in the year just completed $55 Million Outstanding ordinary shares 300 Million Outstanding preference shares Nil Beta of Caltex Ltd 1 1 Risk free rate 1 0 Market risk premium 8 0 Cost of debt before tax 6 0 Company Tax rate 30 Capital Structure on the balance sheet 25 interest bearing debt 75 equity Book Value of interest bearing debt $156 7 Million Market Value of interest bearing debt $166 7 Million Caltex has several fixed assets it is planning to dispose of These assets are non operational and have a market value of $16 Million Caltex has no non operational intangibles that could be sold off Caltex has no investments in financial assets (money market securities, shares, bonds, etc) and has negligible cash Caltex has no losses that could be carried forward for tax purposes and be offset against future earnings to reduce company tax expenditure Predicted growth rates of FCFF are as follows 4 annually in years 1 3 3 in year 4 and thereafter Using Bonnie's information, you estimate the Value of the Firm to be $10,99 406M You did that by calculating the return on equity as 9 8 and then the WACC as 8 4 and then using the WACC to discount the Free Cash Flows to the Firm Your terminal value at the end of year 3 was determined by dividing the FCFF estimate for Year 4 by WACC 3 In coming up with the $10,99 406M value of the firm you incorporated the $16M of non operational fixed assets the company was planning to dispose of Answer the following questions (a)The Fundamental Value of one Caltex share is $ (b)The Price Book Ratio is (c)Based on the information analysed, do you believe that the company's equity is overvalued, undervalued or fairly valued on the ASX currently You need to discuss why you believe the equity to be overvalued, undervalued or fairly valued

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I'm studying Financial Investment and Portfolio Management. please help me this homework. Thank you very much Question 1 The market price of an Aspirations Limited

I'm studying Financial Investment and Portfolio Management. please help me this homework. Thank you very much

Question 1

The market price of an Aspirations Limited share is $25. Its expected rate of return is 8.75%. The risk-free rate is 1.0% and the market risk premium is 8%. What will the intrinsic value of the share be if its beta increases by 10% and all other variables remain unchanged? Assume the share is expected to pay a constant dividend in perpetuity (or forever).

Question 2

Helen is an analyst working for a securities dealership. She needs to do the ordinary share valuation of Fortescue Metals Group (FMG) Limited using dividend discount modelling. The most recent FMG dividend is $1 / share. FMG pays dividends annually and is currently trading ex-dividend.

The company has a trailing Price Earnings ratio (PE) of 7 and a current share price of $25

There is a consensus view that growth in FMGs earnings per share (EPS) will be subdued over the next 2 years due to the steel-making sector in China being depressed. An EPS growth rate of 2% per year nominal for FMG would seem to be appropriate over the next 2 years according to the dealership. For the period after year 2, the dealership thinks 4.5% per year nominal growth is the most likely outcome. The dealership also believes there will be no change in dividend payout ratio going forward.

FMG currently has a beta of 1.05

The current market risk premium is 8% from investing in listed and unlisted products that track the S&P300 Accumulation Index in Australia.

Answer the following questions

a)What is the most recent EPS of FMG assuming there is no earnings dilution predicted?
b)What is the most recent retention (or plowback) ratio of FMG?
c)If the yield on 10-year Australian government bonds is currently 1.0%, what is
your required rate of return as an FMG ordinary shareholder if you base your thinking on the Capital Asset Pricing Model? Assume there is no dividend imputation.
d)What is the intrinsic or fundamental value of the share? Assume there is no dividend imputation?
e)How much is the present value of growth opportunities (PVGO)?

Question 3

Bonnie Barker, an analyst colleague, is helping you gather data for the equity valuation of a listed company in Australia called Caltex Ltd. Bonnie has compiled the following information:

Current price on the ASX of one Caltex ordinary share: $3

Free Cash Flow to the Firm (FCFF) in the year just completed = $55 Million Outstanding ordinary shares = 300 Million

Outstanding preference shares = Nil

Beta of Caltex Ltd = 1.1

Risk-free rate = 1.0%

Market risk premium = 8.0%

Cost of debt before tax = 6.0%

Company Tax rate = 30%

Capital Structure on the balance sheet = 25% interest bearing debt; 75% equity Book Value of interest-bearing debt = $156.7 Million.

Market Value of interest-bearing debt = $166.7 Million.

Caltex has several fixed assets it is planning to dispose of. These assets are non- operational and have a market value of $16 Million.

Caltex has no non-operational intangibles that could be sold off.

Caltex has no investments in financial assets (money market securities, shares, bonds, etc) and has negligible cash.

Caltex has no losses that could be carried forward for tax purposes and be offset against future earnings to reduce company tax expenditure.

Predicted growth rates of FCFF are as follows:

4% annually in years 1-3
3% in year 4 and thereafter
Using Bonnie's information, you estimate the Value of the Firm to be $10,99.406M. You did that by calculating the return on equity as 9.8% and then the WACC as 8.4% and then using the WACC to discount the Free Cash Flows to the Firm. Your terminal value at the end of year 3 was determined by dividing the FCFF estimate for Year 4 by "WACC - 3%".
In coming up with the $10,99.406M value of the firm you incorporated the $16M of non-operational fixed assets the company was planning to dispose of.
Answer the following questions:

(a)The Fundamental Value of one Caltex share is $............
(b)The Price-Book Ratio is ........
(c)Based on the information analysed, do you believe that the company's equity is
overvalued, undervalued or fairly valued on the ASX currently? You need to discuss why you believe the equity to be overvalued, undervalued or fairly valued.