d d d d d d d d d d d d d d d d d Analysis Report
1) In finding out PV of shares , return on the stock 12% is taken as discounting
factor and PV of future cash flows in terms of dividend is added together to find out
the PV of share. For next year’s growth rate is 15% and for 3rd year it is 13%, and
there after there is 6% constant return ,calculations are done accordingly. For finding
out Capital gain and total return PV of year 1,2and 3 is taken as base and accordingly
calculations have been done.
2) In reference to Cost of preference shares, since there is no growth rate is given
and in case of preference share it is fixed so in formula growth rate is ignored and
dividend and market price of share is considered and accordingly by using formula ,
cost of preference share is calculated at 10%.
3) In reference to third question, as the formula is given for each calculation, first
value of operations has been found out, value of non-operating asset was mentioned in
the question and total value of the firm was calculated as $3000000 , value of debt was
given as $1000000 .So for finding value of equity ,Debt was subtracted from the total
asset and value of equity is $2000000 . As the number of equity shares were given as
50000 , so value of equity share calculated accordingly is $40.
