Work out question 3, information starts from the first page, the question is on top of the second page

2.2 2.1.1. Earnings Yield 2.1.2 Dividend Yield, 2.1.3. PE Ratio List four most important factors that would influence an investment analyst in the rating of PE ratios The firm projects a ROE of 25%, it will maintain a plowback ratio of 0.3. The firm is expecting earning of R5 per share and investors expect a return of 10% on the stock What is the expected price and P/E ratio of the firm? 23 (5) (25) QUESTION THREE Cheetah Wheel & Alignment is considering the purchase or lease of a new state of the art wheel alignment machine for their premises in Brickfield Road, Overport, KwaZulu-Natal. The business has 2 options to facilitate the purchase ie buy it straight out or lease it Below are the details for the 2 options The Purchase Option The cost is R60 000. This amount will be paid in cash. It is estimated that this machine wil only have a lifespan of 5 years and will then be sold back to the seller at a residual value of R10 000 Depreciation is calculated on a straight-ine basis. There is an annual software update and it will cost R10 000 p a Maintenance Costs are as follows: Years 1 and 2 R5 000 per year Year 3 RS 500 Years 4 and 5 R5 000 per year The Leasing Option An initial deposit of 25% of the purchase price is required and the lease will run for 5 years. Annual payments of R15 000 need to be made at the end of each of the 5 years. On expiry of the 5th year 20% of the deposit will be refunded. No other costs will be borne by Cheetah Wheel & Alignment 2 Note: Their after tax cost of cost of capital is 10% Their tax rate is 30% Required: Determine the present value of cash flows associated with each alternative. Which option will you recommend to Cheetah Wheel & Alignment? [20] QUESTION FOUR ZeebeeDee Lid has the following capital structure Equity 2 000 000 R2 ordinary shares, market price R2,50 Preference 1 000 000 12% R1 preference shares market price R1.50 Reserves R1 500 000 Bank loan R500 000 15% bank loan Debentures R1 750 000 10% debentures, market price R150 (issued at R100), The current and expected ture rate of ordinary share dividend is 20% with no grow Tax rate is 30% Required: 41 Calculate the weighted average cost of capital using the Dividend Growth Model (15) If the entity requires a further R500 000. Identity and explain which option they will use to finance this amount 15) [20] (2) (2) QUESTION FIVE 5.1 Explain what a residual dividend policy is 5.2 Blippi Lid folows a strict residual dividend policy. Their debt equity ratio is 2:1 521. If their profits are R280 000 for the current year, what is the maximum amount of capital spending possible with no new equity? 52 2. If planned investment outleys for the current year are R850 000, will Blippi be able to pay a dividend? 523. Does Bippi Lid maintain a constant dividend payout? Explain Explain if retained earnings are a free source of finance for the business marad austan and explain which is the most common (2) 121 (2)