Financial crisis , Financial Management

a)  Tonddu plc is expected to report record earnings of £120m next year.  It has grown rapidly over the last few years, the growth has been achieved by maintaining a high level of profitability and investing heavily in the business. The company's investment has been financed entirely from retentions. It has been able to achieve this highly profitable growth as a result of patents for innovative products in an expanding market.  It is expected to invest 70 per cent of its earnings next year, but it is anticipated this investment will fall to 50 per cent of earnings in the following year, to 40 per cent in three years from now, and to 25 per cent in subsequent years.  The rate of return on investment next year is expected to be 50 per cent and this is expected to fall to 35 per cent in year two, to 20 per cent in year three, and to 10 per cent year four and in subsequent years. The opportunities for profitable investment are expected to contract as competitors find their way around the patents and take up more of the market. The expected long term rate of return of 10 per cent is also the shareholders' required rate of return.

Determine a value for the company and explain the basis on which the value was obtained - this should contain an explanation of the key assumptions underlying your analysis.

b) The average price-earnings ratio for companies in a sector is found to be 11.40.  Fallin plc's price earnings ratio is 9.50 and it has been suggested by an analyst who follows the company that this is evidence of the undervaluation of the company's shares.  Critically assess the view of the analyst, pointing out why a price-earnings ratio that deviates from the average cannot be taken as evidence of a mis-valuation of a share.

c) The current financial crisis has led many observers to conclude that the efficient market theory should now be abandoned.  Evaluate this view.

Posted Date: 2/22/2013 4:14:12 AM | Location : United States







Related Discussions:- Financial crisis , Assignment Help, Ask Question on Financial crisis , Get Answer, Expert's Help, Financial crisis Discussions

Write discussion on Financial crisis
Your posts are moderated
Related Questions
Question 1 What is Depreciation? Question 2 What are the elements of an accounting system? Question 3 How do you prepare Flexible Budget? Question 4 Briefly explain

What are the differences between life insurance and property and causality insurance? Life insurance prevents against death, retirement and illness. Companies obtain premiums b

Trial Balances: If the trial balance does not result in a "0", the various records will need to be reviewed to pinpoint the spot where the unbalance occurred and any necessary

Q. Explain about Net Working Capital Concept? Net Working Capital Concept: - Net working capital demotes to the difference among current assets and current liabilities. Current

The relative change in the yield for each treasury maturity is known as a shift in the yield curve. When the change in the yield for all the maturities is same, t

Which formula would you use to solve for the payment required for a car loan if you know the interest rate, length of the loan, and the borrowed amount?  Explain. To answer for

Institutional Clearing Member (ICM) A Financial Institution has to subscribe to at least 100 equity shares of Rs.10,000 each to become an Institutional Clearing Member of COFEI

Explain how the working capital management policies affect the profitability and liquidity of the firm?

Q. What is the rationale of the double-play strategy? Hedge Fund enters agreement to sell HK$ in six month's. At expiration the Hedge Fund requires to buy spot HKD and deliver

What are the pros and cons of commercial paper relative to bank loans for a company seeking short-term financing? Commercial paper is generally a cheaper source of short-term fin