BCO212_Final_Exam_makeup.docx

BCO212 Business Finance 1Final Exam Makeup Task brief & rubrics

Task

· individual

· upload word document or pdf with solutions

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.

Submission:

Weight:

It assesses the following learning outcomes:

· 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%?

Exercise 3 (20 points):

(a&b 10 points each):

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:

Rubrics

	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.