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

Determining the call option value, The effective maturity of a ...

The effective maturity of a callable bond can be anywhere between the first call date and its maturity date due to the presence of the call feat

Reasons for growth of hedge funds, Reasons for Growth of Hedge Funds Ma...

Reasons for Growth of Hedge Funds Many Hedge Fund strategies have the ability to generate positive returns in both rising and falling equity and bond markets. Inclusion of Hedg

How working capital affect incremental cash flow estimation, How and why do...

How and why does working capital influence the incremental cash flow estimation for a planned large capital budgeting project?  Explain. Many large projects need additional worki

Revenue bonds, A revenue bond is a special type of municipa...

A revenue bond is a special type of municipal bond distinguished by its guarantee of repayment from revenues generated by a specifie

Please identify the largest potential threat, Using Southwest Airlines as a...

Using Southwest Airlines as an example, please identify the largest potential threat, the strategy employed, and what types of capital budgeting projects would be used to operation

How to finance the exit of the financiers, How to finance the exit of the f...

How to finance the exit of the financiers The company would have to decide how to finance the exit of the financiers. Considerations comprise: (i)  Selling shares to the pub

Classification of working capital, Q. Classification of Working Capital? ...

Q. Classification of Working Capital? Classification of Working Capital: - Working Capital is able to be classified in two ways firstly on the basis of concept and secondly on

Brigham, how do legal consideration affect a firms credit policy

how do legal consideration affect a firms credit policy

Report on bank''s predicts of exchange rates, Q. Report on bank's predicts ...

Q. Report on bank's predicts of exchange rates? Report on banks' predicts of exchange rates. The three banks have produced extensively differing forecasts which even involve

State the significance of the cost of capital, State the Significance of th...

State the Significance of the Cost of Capital It must be recognized at the outset that cost of capital is one of the most difficult and disputed topics in the finance theory.

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