Evaluation of investment alternatives for abu dhabi

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Reference no: EM132926533

FIN 3003 Corporate Finance - Higher Colleges of Technology

Evaluation of Investment Alternatives for Abu Dhabi Commercial Bank

Question 1

(a) Calculate the following market multiple ratios for Du at its 2020 financial year-end

From the financial statements of the Emirates Integrated Telecommunications Company

i. EV/EBITDA - Enterprise Value/EBITDA,

ii. Price-to-earnings ratio=Market price per share/Earning per share

iii Price-to-book ratio

(c) Compare the PE ratio you calculated for Du with relevant benchmarks (e.g. with another telecom firm in the UAE, or the PE ratio of other telecom companies in other comparable markets)

(d) Evaluate the usefulness of market multiple ratios in company valuation.

Question 2:
a) Calculate the NPV of the project based on the Government's estimate of the franchise cost. Show NPV including and excluding the terminal value.

b) Calculate the IRR of the project. Show NPV including and excluding the terminal value.

c) Indicate ETO should invest in the project if it paid Government's expected franchise cost. Consider the impact of the terminal value in your evaluation

d) Calculate the payback period of the project by excluding the terminal value
Payback period

e) Based on the payback period calculated in (d), should ETO bid for the project on the basis of the Government's estimate of the franchise cost

f) Estimate the maximum price which ETO could bid for this new franchise given that competition is expected to be strong for this project. Include terminal value in your estimate.

g) Estimate what would be the maximum price ETO could bid and still achieve a three years payback on this new franchise?

Question 3

a) Explain whether it is better for ETO to base its bid price on the NPV method or Payback method - you need to explain the advantages and disadvantages of the two methods, which one would you recommend and why?

b) In case ETO pays the 500M, for the bid this would impact our NPV and IRR calculations above.

Reference no: EM132926533

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