a a a a a a a a a a a a a a a a a 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.
