Financial crisis , Financial Management

Assignment Help:

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.


Related Discussions:- Financial crisis

Pension reforms, Pension Reforms On January 1, 2004, Pension Funds have...

Pension Reforms On January 1, 2004, Pension Funds have come into force in India. Government servants will have to subscribe to them. The new pension fund system is primarily dr

Exchange of physicals, Exchange of Physicals: A trader can also complet...

Exchange of Physicals: A trader can also complete the futures contract by engaging in exchange of physicals. In this method, the parties agree to exchange cash and the commodit

Time value of money, In order to provide for R10 million to build a new war...

In order to provide for R10 million to build a new warehouse in 5 years time, a company plans to make equal payments at the end of each six months into a fund which earns 9% per ye

Financial statements for a company, The following is incomplete financial s...

The following is incomplete financial statements for XYZ, Inc.:                                                     XYZ, Inc.

Theories of the term structure, There are two important term structur...

There are two important term structure theories related to the shapes of the yield curve. First is the Expectations Theory and the second is Market Segmentations

Foreign exchange exposure, Using an appropriate 'factor model', assess (a) ...

Using an appropriate 'factor model', assess (a) the performance of the management in creating value for shareholders and (b) the extent of the foreign exchange exposure of a FTSE10

Public finance, explain in detail the primary function of taxation in relat...

explain in detail the primary function of taxation in relation to public fianace

Empirical measurement of liquidity, Empirical Measurement of Liquidity: Th...

Empirical Measurement of Liquidity: The number of days a particular share is being traded reflects the liquidity of the market. If it is traded actively on 50% of the days when th

Social responsibility-business ethics-business entity, Social responsibilit...

Social responsibility The firm must decide whether to operate strictly in their shareholders' best interests or be responsible to their employers, their customers, and the soc

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd