Solution-Estimate ace cos value per share at the end of

Estimate ace cos value per share at the end of year 2002

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Reference no: EM13480587

Ace Co. is to be taken over by Beta Ltd. at the end of year 2007. Beta agrees to pay the shareholders of Ace the book value per share at the time of the takeover. A reliable analyst makes the following projections for Ace (assume cost of capital is 10% per annum):

($ per share)	2002	2003	2004	2005	2006	2007
Dividends	-	$1.00	$1.00	$1.00	$1.00	$1.00
Operating cash flows	-	2.00	1.50	1.00	0.75	0.50
Capital expenditures	-	-	-	1.00	1.00	-
Debt increase (decrease)	-	(1.00)	(0.50)	1.00	1.25	0.50
Net income	-	145%	1.10	0.60	0.25	(0.10)
Book value	9.0	9.45	9.55	9.15	8.40	7.30

Required:

a. Estimate Ace Co."s value per share at the end of year 2002 using the dividend discount model.

b. Estimate Ace Co."s value per share at the end of year 2002 using the residual income model.

c. Attempt to estimate the value of Ace Co. at the end of year 2002 using the free cash flow to equity model.

Reference no: EM13480587

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Estimate ace cos value per share at the end of year 2002

Reference no: EM13480587

Reference no: EM13480587

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