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Managerial Finance - Sample Paper

   

Added on  2021-06-15

11 Pages2574 Words31 Views
Running head: MANAGERIAL FINANCEManagerial FinanceName of the Student:Name of the University:Authors Note:

MANAGERIAL FINANCE1Table of ContentsIntroduction:...............................................................................................................................2Task 1:........................................................................................................................................21. Calculating value of the stock in accordance with the required rate of return frominvestment:.................................................................................................................................22. Tanking the investment in order of desirability:....................................................................33. Selecting the stock for investment and providing relevant reasons for the investment:........4Task 2:........................................................................................................................................5Researching and summarising some interesting facts about Warren Buffet share valuationmethod:.......................................................................................................................................5Task 3:........................................................................................................................................6Comparing the Warren Buffet’s approach to share valuation and share valuation methodologyand recommending one approach for investment:.....................................................................6Conclusion:................................................................................................................................8Reference and Bibliography:......................................................................................................9Appendices:..............................................................................................................................11

MANAGERIAL FINANCE2Introduction:The overall assessment focuses on identifying the most viable valuation method,which could be used by the investor in detecting the actual value of the stock. In addition,viability of the calculations such as dividend discount model, value of ordinary share andWarren Buffet valuation method is conducted to understand the significance of valuationmethod. Moreover, the Warren Buffet valuation method is evaluated to understand theimplication of intrinsic value and how it might help in generating high level of returns frominvestment.Task 1:1. Calculating value of the stock in accordance with the required rate of return frominvestment:ValuationFormulaP/E Valuation ModelP/E ratio * [EPS *(1+G)]Expected rate of returnRisk Free rate + Beta * (Market Return -Risk Free rate)Growth rate(1 – Dividend Pay-out Ratio) * Return on EquityDDM Value of Stock(Recent Dividend * (1 + Growth rate)) / (Expected rateof return – Growth rate)SharesValue as per DDMCurrent priceP/E ratioREA Group $61.96 $88.71 $119.33 Woodside petroleum $11.42 $33.52 $33.19 Westpac Banking Corp $16.31 $30.01 $31.09 ANZ banking group limited $15.20 $27.56 $27.62 New Hope Corporation $0.77 $2.45 $2.32 Z Energy Limited $8.54 $6.88 $6.53 Soul Pattinson (W.H) $24.57 $19.76 $19.55 Computershare Limited $22.68 $17.63 $19.84 Commonwealth bank $78.96 $70.74 $70.95 Link Group $266.91 $6.98 $5.49

MANAGERIAL FINANCE32. Tanking the investment in order of desirability:Refer to appendix 1From the overall evaluation of the above table, the ranking is mainly based on theshare valuations as per dividend discount model and current share price of the organisation.The highest difference in value that will be achieved by the valuation is ranked 1, while thereduction in the overall return is ranked accordingly. The valuation of P/E ratio relevantlyindicates the price changes on the perception of future EPS, which is established byidentifying he growth rate in EPS. In addition, from the overall calculation it could beidentified that Link Group is understood to be the most viable investment opportunity, whichcould help in generating high level of returns from investment. Due to the low accuracy ofEPS valuation the overall ranking is based on Dividend Discount Model. This rankingrelevantly depicts desirability of investors to invest in the company based on the return thatwill be generated from future predicted price. The stock having highest loss from thetheoretical derivation is ranked last, which is REA Group. This desirability factors indicatesthe willingness of the investors to invest in the company to generate high level of return frominvestment. In this context, Asness et al., (2015) stated that with the help of dividend discountmodel investors can identify the future price of stock, which could be used in makingadequate investment decisions. The risk-free rate and market return is calculated rom Bloomberg, while the dividendsof each company are detected from their annual report. The market return is calculated forOne year and All Ordinary Index of Australia is taken into consideration. DDM value iscalculated as per the annual report of 2017 of each organisation.

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