BCO212 Business Finance 1 – Final Exam Makeup Solution
BCO212 Business Finance 1 Exam
Task
- individual
- upload word document or pdf with solutions
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Formalities:
- Wordcount: 900 words maximum, 600-900 words normal
- Cover, Table of Contents, References and Appendix are excluded of the total wordcount.
- Font: Arial 12,5 pts.
- Text alignment: Justified.
- The in-text References and the Bibliography have to be in Harvard’s citation style.
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Submission:
Weight:
It assesses the following learning outcomes: BCO212 Business Finance 1 Exam
- To be able to conduct equity valuation
- Understand the idea of valuation using comparables
Exercise 1 (20 points):
XYZ tech is based in European Union. Share price of XYZ is traded at 62 euro per share. Company is paying dividends once a year. Expected dividend next year is about 1.25 euro per share. Return on equity is equal to 0.12.
Question 1.1:
Using Gordon model find implied growth rate of the company XYZ (10 points)
Question 1.2:
You are worrying that company might be overvalued. Forward P/E ratio in tech sector is about 20. Analysts (whom you trust) expect that earnings per share will be 2 euro per share. Use relative (multiples) valuation method to estimate “fair†share price. Compare your estimate to the actual share price and make a conclusion whether company is overvalued or no? (10 points)
Exercise 2 (30 points):
Procter & Gamble will pay an annual dividend of $1 one year from now. Analysts expect this dividend to grow at 12% per year thereafter until the fifth year. After then, growth will level off at 2% per year. What is the value of a share of Procter & Gamble stock if the firm’s equity cost of capital is 10%?
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Exercise 3 (20 points):
(a&b 10 points each):
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Exercise 4 (12 points): Theoretical question (150 words maximum)
Explain what are the pros and cons of the comparable/multiples valuation of the stocks? What are the most popular multiplicators for stock valuation?
Exercise 5* (8 points): Practical valuation using P/E ratio.
Pick a stock of the publicly traded US-based company of your choice. What is the industry of the company? Use average industry P/E ratio and EPS (earnings per share) of the company to define the “fair†price of the stock.
Hint: you might find this data useful:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/pedata.html
Rubrics-BCO212 Business Finance 1 Exam
| BCO212 Business Finance 1 Exam | Exceptional 90-100 | Good 80-89 | Fair 70-79 | Marginal fail 60-69 |
| Knowledge & Understanding (20%) | Student demonstrates excellent understanding of key concepts and uses vocabulary in an entirely appropriate manner. | Student demonstrates good understanding of the task and mentions some relevant concepts and demonstrates use of the relevant vocabulary. | Student understands the task and provides minimum theory and/or some use of vocabulary. | Student understands the task and attempts to answer the question but does not mention key concepts or uses minimum amount of relevant vocabulary. |
| Application (30%) | Student applies fully relevant knowledge from the topics delivered in class. | Student applies mostly relevant knowledge from the topics delivered in class. | Student applies some relevant knowledge from the topics delivered in class. Misunderstanding may be evident. | Student applies little relevant knowledge from the topics delivered in class. Misunderstands are evident. |
| Critical Thinking (30%) | Student critically assesses in excellent ways, drawing outstanding conclusions from relevant authors. | Student critically assesses in good ways, drawing conclusions from relevant authors and references. | Student provides some insights but stays on the surface of the topic. References may not be relevant. | Student makes little or none critical thinking insights, does not quote appropriate authors, and does not provide valid sources. |
| Communication (20%) | Student communicates their ideas extremely clearly and concisely, respecting word count, grammar and spellcheck | Student communicates their ideas clearly and concisely, respecting word count, grammar and spellcheck | Student communicates their ideas with some clarity and concision. It may be slightly over or under the wordcount limit. Some misspelling errors may be evident. | Student communicates their ideas in a somewhat unclear and unconcise way. Does not reach or does exceed wordcount excessively and misspelling errors are evident. |
