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
I need assistance on Cost of preference share capital in financial management? Can someone help me to solve this proble with example It's Urgent!!!!!!!

The current market value of any real or financial assets is the present value of the cash flows accruing to that asset discounted by a market determined risk-adjusted required rate

London Stock Exchange (LSE) The origin of the London Stock Exchange goes back to the coffee houses of 17th century. London, where people willing to invest or raise money, bough

Like corporate bonds, non-corporate bonds such as asset-backed securities, mortgage-backed securities, municipal bonds, sovereign bonds are also exposed to credit

2010 equity balance required: (600-20 - 25 - 15 - 20)= 520 employees eligible Total expected equivalent value = 520 x 500 options x $1.48 = $384,800 $384,800 x 3/4 years = $28

What is Redeemable debt Company will have to re-pay the debt at redemption date or between the two redemption dates (i.e. 20X5/20X9, means debt can be redeemed any time betwe

what is leverage

Assignment Instructions You are to survey the annual reports of five listed companies in the extractive industry sector from ASX or other sources for the most recent year possib

The management of Border Bank has asked you to help with it with its market risk calculations. It has compiled the following data on its financial assets: • $500 million of amorti

Explain the Basis Risk Basis risk considers to the floating rates of two counterparties being pegged to two dissimilar indices.  In this situation, as the indexes are not compl