MAFA- Practical Questions

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Guest

Guest (Querist)

03 April 2008 I have 2 MAFA practical questions. Please send me the answers through reply.

Question1: A company has a book value per share of R.150. Its return on equity is 15% and it follows a policy of retaining 60% of its earnings. If the opportunity cost of capital is 18%, what is the price of the share today, according to Walter's approach?

Question2:The price of the pound sterling was quoted at $1.80 in New York and on the same date the DM spot rate was quoted at $0.40.
(i)What would you expect the price of the pound to be in Germany?
(ii)If the pound was quoted in Frankfurt at DM 4.40/pound, what would you do to profit from the situation?

Sandeep Diwan

Sandeep Diwan (Expert)
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04 April 2008 Q 1 - EPS = 15% of 150 = Rs.22.50
DPS = 40% of 22.50= Rs 9
Ke = 0.18

Price of share = (D + r/Ke(E- D)}ke
=(9 +0.15/0.18(22.5-9))/0.18
= Rs. 112.50

Guest

Guest (Querist)

06 April 2008 Than you Sandeep Sir.

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