Question: question 1 assets 2018 2019 cash ...

QUESTION 1

Assets                                            2018                                       2019

Cash . . . . . . . . . . . . . . . . . . . . . . .   $ 250,000                         $ 450,000

Noncurrent assets . . . . . . . . . . . .    1,750,000                        1,750,000

Total assets .. . . . . . . .. . . . . . . .. .  $2,000,000                      $2,200,000

 

Liabilities and Equity

Current liabilities . . . . . . . . . . . . . . . $ 200,000                       $ 200,000

Noncurrent liabilities  (bonds) . .          675,000                          675,000

Common stockholders' equity. . . . .  1,125,000                       1,325,000

Total liabilities and equity . . . . . . . .$2,000,000                    $2,200,000

Additional Information:

Net income after tax for 2019 is $180,000. This includes interest expense at the rate of 8% on the non-current bonds. Cash earns 1% interest. Income tax rate is 30%. Comprehensive income for 2019 is $200,000. Dividends were $20,000 in both 2018 and 2019. Current liabilities are entirely comprised of non-interest-bearing accounts payable.

 

1) compute ROE (seperate into RNOA, spread, leverage) show all calculations, using average balance sheet items 

 

QUESTION TEN (8 marks)

At the end of 2018, the shares of Catal Ltd, a farming company, traded at $20.50 each. In its 2018 annual report, Catal had reported book value of equity of $4,500 million with 2,300 million shares outstanding. You will use analysts forecasts as your expectations for future earnings. The forecasts for earnings-per-share are $1.50 for fiscal year 2019 and $1.65 for 2020. Catal pays no dividend.

 

Required:

Estimate the per-share value of Catal Ltd at the beginning of 2019 using the residual earnings model based on the analysts' forecasts, with an additional forecast that residual earnings will grow at the anticipated GDP growth rate of 2 percent per year after 2020. You expect a required return of 9 percent.