Reference no: EM132735141 , Length: word count:1300
MA514 Business Finance -Melbourne Institute of Technology
Learning Outcome 1: Demonstrate strong conceptual corporate finance knowledge to analyse and interpret advances in theory for professional practice.
Learning Outcome 2: Communicate relevant high level finance knowledge with other professionals.
Assessment Task Description
Victoria Tokoeke Builders (VTB) constructs prestige homes in Victoria. VTB has experienced rapid growth because of the reputation they build up in the construction industry. Max and Wilson equally own the Business. The original partnership agreement gave each 50 000 shares. They have decided they should value their holdings in the business. To get, started, they have gathered the following information about their main competitors:
|
Names of Competitors
|
Earnings per share (EPS) ($)
|
Dividends per share (DPS) ($)
|
Share price
($)
|
ROE
|
Required rate of return (R) ($)
|
|
Bright Homes
|
1.30
|
0.16
|
25.34
|
8.5%
|
10%
|
|
Cool Homes
|
1.95
|
0.23
|
29.85
|
10.5%
|
13%
|
|
Expert Homes
|
0.96
|
0.14
|
22.13
|
9.78%
|
12%
|
|
Industry average
|
1.40
|
0.18
|
25.77
|
9.59%
|
11.67%
|
Last year, VTB had an EPS of $3.15 and paid dividend owners $ 0.90 per share. The company also had a return of equity of 17%. Max and Wilson believe that 14% is an appropriate required return for the company.
To evaluate their business Max and Wilson hired Josh Samuel as a consultant, and asked him to submit a report about company share price based on market movements.
Samuel has examined the company financial statements, as well as those of their competitors. Although VTB currently has a reputational advantage, his study indicates that other companies are investigating ways to improve their own standing. Given this, Samuel believes that VTB reputational advantage will last for only the next five years. After that period, the company's growth will probably slow to the industry growth average. Additionally, he believes that the required rate of return used by the company is too high. He believes the industry average required return is more appropriate. Based on above assumptions, Samuel asked your support to prepare a report.
In your report:
1. Explain dividend growth model.
2. Compare and contrast constant dividend growth model and non- constant dividend growth model.
3. Estimate the share price for VTB based on above assumptions.
This assignment must be written/structured in the form of a ‘business report'. That is, it must have a/an;
(a) Executive summary (between 100 to 150 words),
(b) Introduction that;
Succinctly summarizes this assignment's topic and its key issues, controversies, etc. (no more than 200 words), and
(c) Body that addresses all the requirements - see above 1-3 (no more 1000 words),
(d) Conclusion that sums up the mains issues of this assignment (no more than 200 words), and
(e) Reference list containing all cited works.
(f) Proper English Grammar, appearance, format, etc.
Attachment:- Business Finance.rar