Question 2abc
You will get this Formula Table at the exam so learn well how to apply it in your FM (F9) Exam
Year to March | 2014 $000 | 2015 $000 |
---|---|---|
Earnings | 13,200 | 13,840 |
Ordinary shares | 8,000 | 8,000 |
The nominal value of the ordinary shares of Chad Co is $0·50 per share. Listed companies similar to Chad Co have an earnings yield of 8·2%.
Required:
(a) Calculate the equity market value of Chad Co using the dividend growth model. (3 marks)
(b) Calculate the equity market value of Chad Co using the earnings yield method. (2 marks)
(c) Discuss the relative merits of the dividend growth model and the earnings yield method as a way of valuing Chad Co. (5 marks)