Management Competency
Autor: vvbritney • January 20, 2017 • Case Study • 975 Words (4 Pages) • 669 Views
Part A.
Net asset in 2015 | 287,387 |
Net asset in 2014 | 175,406 |
Net income 2015 | 56,766 |
ROE(2015)=Net income 2015 / Net asset in 2014 | 0.3236 |
Dividend payout ratio = Dividend 2015 / Net income 2015 | 0.603 |
ROE after dividend= ROE (2015)* (1- Dividend payout ratio) | 0.1285 |
a)
From the Select Harvest Ltd 2015 Annual Report[1]
Step1:
Net income for 2015, NI2015=56,766
Book value at 2014.6.30, bv2014=175,406
Book value at 2015.6.30, bv2015= 287,387
ROE2015=NI/E2015= 56,766/175,406= 0.3236
(Note: the unit of net income and book value is $1,000)
Step2:
Assume Select Harvest has persistence earnings for seven years, ROE and dividend payout ratio will continue for seven years.
Dividend payout ratio, k, for 2015= Dividend per share/ Earnings per share
= 50/82.9 = 0.603
ROE after dividend=0.32362633*(1-0.603) = 0.1285
Step3:
Assume cost of equity will stay constant
CAPM= Rf+ βj(E(Mt)-Rf)＝2.85%+1.29*4.8%= 9.04%
β=1.29[2]
Rf=2.85 % [3]
(E(Mt)-Rf)=4.8%
Step4:
Expected BV based on the firm generating ROE of Select Harvest Ltd for 7 years
bv2015=287,387
bv2016= 287,387*(1+0.1285) = 324,310
bv2017= 324,310*(1+0.1285) = 365,978
bv2018= 365,978*(1+0.1285) = 412,998
bv2019= 412,998*(1+0.1285) = 466,060
bv2020= 466,060*(1+0.1285) = 525,939
bv2021= 525,939*(1+0.1285) = 593,512
(Note: the unit of book value is $1,000)
Step5:
abnormal earning2016= (0.3236-0.0904) * 287,387= 67,020
abnormal earning2017= (0.3236-0.0904) * 324,310= 75,631
abnormal earning2018= (0.3236-0.0904) * 365,978= 85,348
abnormal earning2019= (0.3236-0.0904) * 412,998= 96,314
abnormal earning2020= (0.3236-0.0904) * 466,060= 108,688
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