Investment decision based on the theoretical value of firm

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The final task in this section requires you to make an investment decision based on the theoretical value of a firm. This requires you to complete several steps:

The company you will consider investing in is Woodside Petroleum (WPL). You should assume that the equity market risk premium is 5%, and the risk free rate is equal to the RBA cash rate at the time of your analysis.

Undertake a brief industry and company analysis,

Select the most appropriate present value model and derive a theoretical price for the share,

Determine whether you would invest in the company’s ordinary shares.

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