How we can arrive at economic value by giving two examples

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Reference no: EM131884676

Income statement 31 Dec 2012	£(million)
Revenue		62,000
Cost of sales		55,800
Gross Profit		6,200
Expenses		1,700
Operating profit		4,500
Interest cost		520
Profit before tax		3,980
dividends		1,800
retained earnings		1,066

Balance sheet extracts at 31 Dec 2012
	£ (million)	£ (million)
		2012 2011
long term debt		8700 10800
short term debt		1400 1620
Total debt		10,100 12,420
Total equity		16,623 n/a

Additional Data at 31 Dec 2012
P/E ratio		14
Price to cashflow		7.5
Corporate tax		28%
number of ordinary shares of £1 (in millio		1400

1. Calculate the value of each share as at 31 Dec 2012

2. Calculate dividend yield as at 31 Dec 2012

3. Calculate the price to book ratio as at 31 Dec 2012

4. Explain the four market multiple ratios which were identified in this question and comment on the value of this company

5. Critically discuss whether book value is a good estimate of economic value of assets? Briefly outline how we can arrive at economic value by giving two examples of balance sheet items.

Reference no: EM131884676

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