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Strategic Corporate Fiance - Essay Example

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Strategic Corporate Fiance

From the above-mentioned table, it is quite evident that Net Asset Value of Marks and Spencer have increased for 0.03 bases point and is higher in 2011 than 2010. The company has net assets worth of ?1.72 in 2011 and ?1.69 in 2010, which clearly explains that the Net Asset Value is improving. 2) Cost of Capital (CAPM) In the table mentioned below, the computations have been shown for the weighted average cost of capital of the company, Marks and Spencer. The cost of debt of the company is 4% whereas the cost of capital of the company was found as 4.5%. The weighted average cost of capital of the company, which incorporated the value of debt and value of equity was found to be 4.33%. Cost of Debt     Rd = Annual Coupon   Current Bond Price       = 5   125     Rd = 4.00% Value of Equity Ve = Current Price of Share x Number of Shares outstanding = 3.76 x 1,600 = 6,016 Value of Debt Vd = Current Price of Bond x Number of Bonds Issued = 125 x 2,489 = 3,111                 100     Weights     Wd = Debt = 3,111 = 34.09%   Debt + Equity 3,111 + 6,016       We = Equity = 6,016 = 65.91%     Debt + Equity   3,111 + 6,016     3) Dividend Growth Model (DGM) In this section of the paper, computations for Gordon’s dividend growth models have been shown. ...
    K – g   0.045 - 0.02     From the above-mentioned table, this information can be extracted that if the growth rate is zero, then the hypothetical ex-right price of share price of Marks and Spencer is approximately 377 pence. In contrast to that, if it is assumed that dividend grow at the rate of 2%, then there is an enormous increment in the share price of the company, which is around 693 pence. It can be stated that at the growth rate 0, the share price of the company of 363 pence is more appropriate than the share price at growth rate 2%, which is 693. The share price of 693 pence is highly optimistic. 4) Price Earnings Ratio (P/E Ratio) The following table demonstrates the Price Earnings Ratio of Marks and Spencer. Price Earnings Ratio   31-Mar-12 11-Jan-13 P/E Ratio = 376 = 11.56 times = 363 = 11.2 times     32.5         32.5     In the year 2011, the Price Earnings Ratio of the company is 11.56. Nevertheless, it reduced in the last year to 11.2 because there was a reduction in the share price of the company. The average price earnings ratio of the respective industry of Marks and Spencer is 8.5 times, on the other hand, the P/E of Marks and Spencer is 11.2 times. If the P/E of Marks and Spencer is compared with the industry average, then it can be stated the Price Earnings ratio of Marks and Spencer is substantially higher than the industry average. It reveals that the share price of the company is over-values as compared to its industry competitors. Task 2 Investment in stocks is something which can be extremely tricky for ordinary investors. This is because the investors lack in having capabilities regarding the pricing of the stocks. The pricing of stocks have turned out to be a key factor as a minor mistake in ...Show more

Summary

Task 1 1) Net Assets Value Net asset value measures the value of the firm’s assets, excluding the liabilities. It is usually calculated based on per share (Babu, 2012). The Net Assets Value of Marks and Spencer for 2011 and 2010 are mentioned in the table below…
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