Last Activity for Mid-Year term 2021
Subject: Valuation, Concepts and Methods
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1. Company BSA-CdD is a non-listed private company with total equity of P10 million and
debts of P4.5 million. The tax rate is 30%, risk-free rate is 6%.
Company STEP is publicly listed company which is in the same industry, product line and
risk profile of Company BSA-CdD. It has a beta of 1.5, equity of P 15million and a total
debt of P6million. Tax rate is 35%. The expected return of a market portfolio is 12 % and
the risk-free return is 8%.
Requirement:
a. Compute the beta for Company BSA-CdD
b. Compute the risk premium and the required return for Company STEP market
portfolio.
2. VCM_BSA1 wants to borrow funds from VCM_BSA3. The risk-free rate is 6% and current
inflation is 2%. It is expected that the inflation is expected to grow at 3%. VCM_BSA3
finds a relevant margin of 4% on the loan.
Requirement:
a. Compute risk-free rate
b. Compute new nominal risk-free rate
c. Compute interest rate for the loan
3. Assume that a company’s share has intrinsic value of P125 per share and is trading at
P130. This company requires an 6% minimum rate of return and will pay a dividend per
share next year which is expected to increase by 4% annually.
a. How much the company will pay for dividend per share?
b. What is the status of the shares inn market?
4. Compute the cost of ordinary shares of West Corp?
Assume that the market price of West Corp share is P40.00 The dividend to be paid at
the end of the coming year is P4.00 per share. It is expected to grow at a constant
annual growth of 6%.