Please answer the following 4 questions and show work as best as you can
Please answer the following 4 questions and show work as best as you can (adjusted from comments)
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1. Estimate the value per share of AAA using the dividend discount as of March 31, 2009. Assume all cash flows in subsequent years
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Order Paper Nowoccur at year-end (e.g., discount 2010 cash flows back one year).
2. Estimate the value per share of AAA using the discounted cash flow approach.
3. Estimate the value per share using the balance sheet method.
4. Compnay has been trading at about $0.42 per share. Based on the preceding should you
buy or sell shares?
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Assume that your analysis of COMPANY indicates the following forecasts and assessments (in
alphabetical order):
Accounts receivable: increase of 156 in 2010; decrease of 251 in 2011,
Cost of capital is 10%
Depreciation and amortization: constant at 2009 levels for 2010 and 2011
Future free cash flows (already adjusted for interest) from 2012 to perpetuity, present
valued to 2009: 3,400
Future repurchases and dividends from 2012 to perpetuity, present valued to 2009: 3,590
Income tax rate: 25% for all future periods
Interest-hearing debt: 621 as of March 31, 2009, constant going forward
Interest expense: constant at 2009 levels for 2010 and 2011
Internally developed patents, fair value: 3,100M as of March 31, 2009
Inventories: decrease of 123 in 2010; increase of 44 in 2011
Net Income: 233 in 2010; 315 in 2011
Payables: increase of 442 in 2010; decrease of 51 in 2011
Payments for construction of plant and equipment in progress: 23 in 2010 and 45 in 2011
Purchased intangibles, fair value: 1,600M as of March 31, 2009
Payments to purchase completed property, plant and equipment: 110 in 2011; 112 in 2011
Retained earnings: increase of 43 in 2010; increase of 115 in 2011
Sales of PP&E: none in 2010; proceeds of 15, gain of 5 in 2011
Shares outstanding: 9,211 million as of March 31, 2009
Transfers of self-constructed property, plant and equipment from construction in progress
to completed PP&E: 17 in 2010; 19 in 2011
Share repurchases: 65 in 2010; 76 in 2011
Unrecognized environment liabilities, fair value: 150M as of March 31, 2009
BALANCE SHEETS
At March 31, 2009
| 2009 | ||
| Non-current assets | ||
| Property, plant and equipment | 314 | 365 |
| Construction in progress | 47 | 51 |
| Intangible assets | 1853 | 1838 |
| Available-for-sale securities | 102 | 68 |
| Other | 205 | 172 |
| 2521 | 2494 | |
| Current Assets | ||
| Inventories | 450 | 472 |
| Trade receivables, net | 728 | 861 |
| Other | 746 | 1182 |
| Cash and cash equivalents | 1863 | 2191 |
| 3787 | 4706 | |
| Total Assets | 6308 | 7200 |
| Share capital | 1136 | 1180 |
| Reserves | 175 | 433 |
| Total equity | 1311 | 1613 |
| Non-current liabilities | 891 | 1098 |
| Current liabilities | ||
| Trade payables | 1991 | 2282 |
| Provisions and accruals | 1510 | 1945 |
| Income Tax payable | 89 | 87 |
| Bank loans | 20 | 61 |
| Current portion of long-term debt | 437 | 49 |
| Other | 59 | 65 |
| 4106 | 4489 | |
| Total Liabilities | 4997 | 5587 |
| Total liabilities and equity | 6308 | 7200 |
| INCOME STATEMENT | |
| For the year ended March 31, 2009 | |
| 2009 | |
| Sales | 14901 |
| Cost of sales | 13160 |
| Gross profit | 1741 |
| Selling, distribution and other expenses | -1103 |
| Administrative expenses | -628 |
| Research and development expense | -220 |
| Operating loss | -210 |
| Interest income | 62 |
| Interest expense | -40 |
| Loss before taxes | -188 |
| Taxation | -38 |
| Loss for year | -226 |
| CASH FLOW STATEMENT | |
| For the year ended March 31, 2009 | |
| 2009 | |
| Cash flows from operating activities | |
| Net income | -226 |
| Depreciation and amortization | 281 |
| Gain/loss on sale of equipment and other assets | -1 |
| Change in receivables | 616 |
| Change in inventories | 26 |
| Change in payables | -692 |
| Other | -59 |
| Net cash generated from operating activities | -55 |
| Purchase of property, plant and equipment | -107 |
| Proceeds from sales of property, plant and equipment | 11 |
| Construction of property, plant and equipment in process | -64 |
| Purchases of intangible assets | -17 |
| Proceeds from sales of securities available for sale | 10 |
| Net cash used in investing activities | -173 |
| Exercise of share options | 10 |
| Repurchase of shares | -54 |
| Dividends paid | -178 |
| Increase in bank borrowings | 122 |
| Net cash used in financing activities | -100 |
| Change in Cash | -328 |
