(ii) Briefly discuss TWO factors which could reduce the rate of return earned by the inves
(ii) Briefly discuss TWO factors which could reduce the rate of return earned by the investment as per the
results in part (a). (4 marks)
(ii) Briefly discuss TWO factors which could reduce the rate of return earned by the investment as per the
results in part (a). (4 marks)
(ii) Briefly discuss THREE disadvantages of using EVA? in the measurement of financial performance.
(3 marks)
(ii) Briefly discuss FOUR non-financial factors which might influence the above decision. (4 marks)
(ii) Briefly explain the extent to which the application of sensitivity analysis might be useful in deciding
which refrigeration system to purchase and discuss the limitations inherent in its use. (3 marks)
(ii) Briefly outline the tax consequences for Henry if the types of protection identified in (i) were to be
provided for him by Happy Home Ltd compared to providing them for himself. You are not required to
discuss the corporation tax (CT) consequences for Happy Home Ltd. (4 marks)
(c) Explain the term ‘target costing’ and how it may be applied by GWCC. Briefly discuss any potential
limitations in its application. (8 marks)
(b) Briefly discuss how stakeholder groups (other than management and employees) may be rewarded for ‘good’
performance. (4 marks)
Financial analysts have forecast that the dividends of Close Co will grow in the future at a rate of 4% per year. This is slightly less than the forecast growth rate of the profit after tax (earnings) of the company, which is 5% per year. The finance director of Close Co thinks that, considering the risk associated with expected earnings growth, an earnings yield of 11% per year can be used for valuation purposes.
Close Co has a cost of equity of 10% per year and a before-tax cost of debt of 7% per year. The 8% bonds will be redeemed at nominal value in six years’ time. Close Co pays tax at an annual rate of 30% per year and the ex-dividend share price of the company is $8·50 per share.
Required:
(a) Calculate the value of Close Co using the following methods:
(i) net asset value method;
(ii) dividend growth model;
(iii) earnings yield method. (5 marks)
(b) Discuss the weaknesses of the dividend growth model as a way of valuing a company and its shares. (5 marks)
(c) Calculate the weighted average after-tax cost of capital of Close Co using market values where appropriate. (8 marks)
(d) Discuss the circumstances under which the weighted average cost of capital (WACC) can be used as a discount rate in investment appraisal. Briefly indicate alternative approaches that could be adopted when using the WACC is not appropriate. (7 marks)
(e) Briefly discuss FOUR initiatives that management might consider in order to further enhance profitability.
(4 marks)
为了保护您的账号安全,请在“简答题”公众号进行验证,点击“官网服务”-“账号验证”后输入验证码“”完成验证,验证成功后方可继续查看答案!