Strategic Corporate Finance
Task 1 Valuation of Morrison plc. (20 marks)
(Use only the information contained in the assignment for task 1)
a) Net asset value
Calculate and comment briefly on the Net asset value per share for Morrisons.
b) Cost of capital
i. Calculate the cost of equity capital for Morrisons plc. using the Capital Asset Pricing Model.
ii. Calculate the cost of debt capital (ignore tax)
iii. Calculate the weighted average cost of capital (WACC).
(use the share price as at 2 Feb 2014 for the value of equity)
iv. Comment briefly on your results
c) Dividend growth model
Use the dividend growth model to calculate the theoretical price of a share under the following assumptions:
(i) g = 0%
(ii) g = 2%
(iii) Comment briefly on your results
d) Value per share using the price earnings (p/e) ratio
Calculate the price earnings ratio using the share prices as at 2 Feb 2104 (240p) and 20 March 2014 (208p) using the EPS
figure for 2014.
Comment on your answers if the retail industry sector containing Morrisons has an average p/e ratio of 15.0.
Task 2 (60 marks)
Calculate the value of a Morrisons share and advise your client
a) Use the information from your calculations to arrive at the valuation of a Morrison share. In doing so you should critically evaluate the models used in your calculations and relate your calculations to the current and historic share price information as appropriate.
b) Discuss whether you would advise your client to make an investment in this company
Task 3 Share price tracking (20 marks)
Critically analyse the movement of your chosen share during the period it was being tracked, Choose the length of time you feel most appropriate.
Refer to relevant theories and academic literature to explain why and to what extent the share moved in response to new information.