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

Risks associated with investing in bonds, Interest rate risk is the risk wh...

Interest rate risk is the risk wherein the investor in bonds faces the risk of a fall in his bond price as and when there is a rise in the market interest r

Company capacity to continue trading, Company capacity to continue trading ...

Company capacity to continue trading Given the preceding discussion it is unlikely that the business can continue in its current form. The trading performance is clearly very

Show the supposition of mm hypothesis, Q. Show the Supposition of MM Hypoth...

Q. Show the Supposition of MM Hypothesis? Supposition of MM Hypothesis:- (i) There are ideal capital markets. (ii) Investors act rationally. (iii) Information regardin

Accrual bond, It is a bond that does not give periodic interest payments. I...

It is a bond that does not give periodic interest payments. In spite of that, interest is added to the principal balance of the bond and is either paid at maturity or, at some poin

Variance analysis, a)   Write short note - 1) P V Ratio 2) Margi...

a)   Write short note - 1) P V Ratio 2) Margin of Safety   3) Material Variances 4) Absorption Costing b)  Describe the meaning of the term 'variance an

Explain basril plc, BASRIL PLC (a) (i) Analysis of projects assum...

BASRIL PLC (a) (i) Analysis of projects assume they are divisible. Project 2 NPV at 12% = (140800 × 3·605) - 450000 = $57584 Project 2 profitability index = 5

Investment strategy of hedge funds, Investment Strategy OF HEDGE FUNDS ...

Investment Strategy OF HEDGE FUNDS After the Funds are raised from genuine investors, the next step for Hedge Funds is to invest them as per the investment objectives and strat

Convertible bonds, The issuer offers bonds with an option to the investor t...

The issuer offers bonds with an option to the investor to convert these bonds into equity shares at a pre-fixed ratio. These can be fully convertible bonds or partly co

Asymmetric cash matching, When a set of predetermined liabilities are given...

When a set of predetermined liabilities are given, the investor must construct a non-callable bond portfolio of homogeneous ratings by considering certain characteris

Determine profit for the year, The assets and liabilities of S Harrison as ...

The assets and liabilities of S Harrison as at 30 June 2012 are: On 1 July 2011 when the business commenced, Harrison owed $58,000 on the land and buildings and $1,200 on

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