I need solution on question no 3 on attach page

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I need solution on question no 3 on attach page


Microsoft Word - Portfolio Management - practice questions.docx PortfolioManagement-PracticeQuestions Question1 Question2 Question3 AB Ltd is a construction company which is contemplating acquisition of SEMTEC Ltd. AB Ltd is trying to figure out a fair price that it should offer to purchase SEMTEC Ltd’s shares. Following information is available in this regard. All figures in £000 Particulars AB Ltd SEMTEC LTD Beta 0.7 1.4 Interest rate on debt 6% 10% Weight of debt in capital 0.4 0.7 EBIT 1,300 390 Depreciation 22 8 Amortisation 7 - Marketing expenses 123 79 Capital expenditure 20 - Interest expense 82 91 Total current assets (previous year) 260 128 Total current assets (current year) 270 149 Total current liabilities (previous year) 210 152 Total current liabilities (current year) 200 127 Cash (previous year) 30 12 Cash (current year) 28 2 Additional information: • Marginal tax rate = 30% • Risk free rate = 3% • Market risk premium = 6% Use this information to answer the following questions. a) Required return on equity for AB Ltd and SEMTEC Ltd respectively is; a. 7.2%; 11.4% b. 6%; 10% c. 5.1%; 7.2% d. None of the above b) Weighted average cost of capital (WACC) of both AB Ltd and SEMTEC Ltd respectively is; a. 8.32%; 6% b. 6%; 8.32% c. 7.2%; 10% d. 6%; 7.2% Question4 Suppose your expectations regarding the stock price are as follows: State of the Market Probability Ending Price HPR (including dividends) Boom 0.35 $140 44.5% Normal growth 0.30 110 14.0 Recession 0.35 80 -16.5 Compute the mean and standard deviation of the HPR on stocks.
Answered Same DaySep 24, 2022

Answer To: I need solution on question no 3 on attach page

Prince answered on Sep 24 2022
58 Votes
Part a.
Return on Equity = Net/Total Shareholder’s Equity:
Calculation of Net Income
    Particula
r
    AB Ltd
    SEMTEC Ltd
    EBIT
     1,300.00
     390.00
    Less: Interest Expenses
     82.00
     91.00
    EBT
     1,218.00
     299.00
    Less: Tax (30%)
     365.40
     89.70
    Net Profit
     852.60
     209.30
Calculation of Total Shareholder’s Equity
    Particular
    AB Ltd
    SEMTEC Ltd
    Interest Expenses (A)
    82
    91
    Interest rate on debt (B)
    6%
    10%
    Amount of Debt (C = A/B)
     1,366.67
     910.00
    Weight of debt in capital (D)
     ...
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