ch 03financial management notes2

25
Chapter 3: Valuation of Bonds and Shares Problem 1 (1) 1-year government bond maturity value (Rs) 1,000 Market rate of interest 8% PV of the bond: 1,000/1.08 (Rs) 925.93 (2) Purchase price of bond (Rs) 904.98 Implied return: (1,000 – 904.98)/904.98 10.50% Problem 2 Perpetual interest (Rs) 140 Current yield 0.13 Price of bond (B) (Rs): 140/0.13 1076.92 Required rate 0.15 New price of bond (B) (Rs) : 140/0.15 933.33 Problem 3 Face value (Rs) 1000 Annual interest (Rs) 140 Maturity (years) 10 Maturity value (Rs) 1000 Required rate 0.12 0.14 0.16 PVAF, 10 year 5.6502 5.2161 4.8332 PVF, 10 year 0.3220 0.2697 0.2267 PV of interest (Rs) 791.03 730.26 676.65 PV of maturity value (Rs): (d x g) 321.97 269.74 226.68 PV of 10-year debenture (Rs) 1113.00 1000.00 903.34 Similar calculations can be made if the required rate is 14% or 16%. Required rate 0.12 0.14 0.16 PVAF, 5 year 3.6048 3.4331 3.2743 PVF, 5 year 0.5674 0.5194 0.4761 PV of interest (Rs) 504.67 480.63 458.40 PV of maturity value (Rs) 567.43 519.37 476.11 PV of 5-year debenture (Rs) 1072.10 1000.00 934.51 Problem 4 Face value (Rs) 1000 Interest rate 0.16 Interest (Rs): (1,000 x 0.16) 160 Price of bond, B 0 (Rs) 800 1300 1000 0.20 0.123 0.16 Problem 5 Taxco (three-year maturity): PVF PVF What would happen to the present value of bond if it had a maturity of 5 years? A similar procedure can be followed. PV of a 5-year bond at 12%, 14% and 16% respectively will be as shown below: 1,113.00 Rs 3220 . 0 000 , 1 6502 . 5 140 PVF 000 , 1 PVAF 140 ) 12 . 1 ( 000 , 1 ) (1.12 140 = bond year - 10 of PV 10 .12, 10 .12, 10 10 n 1 t t t = × + × = × + × = + = = 0 B INT Yield =

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Page 1: Ch 03financial management notes2

Chapter 3: Valuation of Bonds and Shares

Problem 1

(1) 1-year government bond maturity value (Rs) 1,000

Market rate of interest 8%

PV of the bond: 1,000/1.08 (Rs) 925.93

(2) Purchase price of bond (Rs) 904.98

Implied return: (1,000 – 904.98)/904.98 10.50%

Problem 2

Perpetual interest (Rs) 140

Current yield 0.13

Price of bond (B) (Rs): 140/0.13 1076.92

Required rate 0.15

New price of bond (B) (Rs) : 140/0.15 933.33

Problem 3

Face value (Rs) 1000

Annual interest (Rs) 140

Maturity (years) 10

Maturity value (Rs) 1000

Required rate 0.12 0.14 0.16

PVAF, 10 year 5.6502 5.2161 4.8332

PVF, 10 year 0.3220 0.2697 0.2267

PV of interest (Rs) 791.03 730.26 676.65

PV of maturity value (Rs): (d x g) 321.97 269.74 226.68

PV of 10-year debenture (Rs) 1113.00 1000.00 903.34

Similar calculations can be made if the required rate is 14% or 16%.

Required rate 0.12 0.14 0.16

PVAF, 5 year 3.6048 3.4331 3.2743

PVF, 5 year 0.5674 0.5194 0.4761

PV of interest (Rs) 504.67 480.63 458.40

PV of maturity value (Rs) 567.43 519.37 476.11

PV of 5-year debenture (Rs) 1072.10 1000.00 934.51

Problem 4

Face value (Rs) 1000

Interest rate 0.16

Interest (Rs): (1,000 x 0.16) 160

Price of bond, B0 (Rs) 800 1300 1000

0.20 0.123 0.16

Problem 5

Taxco (three-year maturity): PVF PVF

What would happen to the present value of bond if it had a maturity of 5 years? A similar procedure can be

followed. PV of a 5-year bond at 12%, 14% and 16% respectively will be as shown below:

1,113.00 Rs3220.0000,16502.5140

PVF000,1PVAF140

)12.1(

000,1

)(1.12

140=bondyear -10 of PV

10 .12,10 .12,

10

10n

1t

tt

=×+×=

×+×=

+∑=

=

0B

INTYield =

Page 2: Ch 03financial management notes2

Year Cash flow 9% PV (Rs) 12%

1 120 0.917 110.09 0.893

2 120 0.842 101.00 0.797

3 1120 0.772 864.85 0.712

1075.94

Maxco (three-year maturity):

Year Cash flow PVF 9% PV (Rs) PVF 12%

1 60 0.917 55.05 0.893

2 60 0.842 50.50 0.797

3 1060 0.772 818.51 0.712

924.06

Taxco (eight-year maturity):

Year Cash flow 9% PV (Rs) 12%

1 120 0.917 110.09 0.893

2 120 0.842 101.00 0.797

3 120 0.772 92.66 0.712

4 120 0.708 85.01 0.636

5 120 0.650 77.99 0.567

6 120 0.596 71.55 0.507

7 120 0.547 65.64 0.452

8 1120 0.502 562.09 0.404

1166.04

Maxco (eight-year maturity):

Year Cash flow PVF 9% PV (Rs) PVF 12%

1 60 0.917 55.05 0.893

2 60 0.842 50.50 0.797

3 60 0.772 46.33 0.712

4 60 0.708 42.51 0.636

5 60 0.650 39.00 0.567

6 60 0.596 35.78 0.507

7 60 0.547 32.82 0.452

8 1060 0.502 531.98 0.404

833.96

Problem 6

(1) Annual compounding: Annual interest rate 12%

Discount rate - annual 10% 12%

Period Cash flow PVF PV PVF

1 to 5* 120 3.791 454.89 3.605

5 1,000 0.621 620.92 0.567

620.92

* Annuity factor

(2) Half-yearly compounding: Half-yearly interest rate 6%

Discount rate -half-yearly 5% 6%

Period Cash flow PVF PV PVF

1 to 10* 60 7.722 463.30 7.360

10 1,000 0.614 613.91 0.558

1,077.22

* Annuity factor

(3) Quarterly compounding: Quarterly interest rate 3%

Discount rate -half-yearly 2.50% 3%

Period Cash flow PVF PV PVF

1 to 20 60 15.589 935.35 14.877

Page 3: Ch 03financial management notes2

20 1,000 0.610 610.27 0.554

1,545.62

* Annuity factor

Problem 7

Face value (Rs) 1,000

Maturity periods (half-yearly) 20

Half-yearly interest rate 6%

Interest payment period 10

Maturity value (Rs) 1,050

Required rate (half-yearly) 7%

Interest payment, 11 to 20 years (Rs) 60.00

Value of interest (Rs) 214.23

Value of maturity value (Rs) 271.34

Value of bond (Rs) 485.57

Problem 8

Bond 1 Bond 2 Bond 3 Bond 4

Interest rate 16% 14% 12% 12%

Required rate of return 15% 13% 8% 8%

Maturity period (years) 25 15 20 10

Par/maturity value (Rs) 100 100 100 100

Semi-annual interest rate 8.00% 7.00% 6.00% 6.00%

Required rate of return (half-yearly) 7.50% 6.50% 4.00% 4.00%

Compounding periods 50 30 40 20

PVAF (annuity) 12.9748 13.0587 19.7928 13.5903

Half-yearly interest (Rs) 8 7 6 6

PV of interest (Rs) 103.80 91.41 118.76 81.54

PVF (lump sum) 0.0269 0.1512 0.2083 0.4564

PV of maturity value (Rs) 2.69 15.12 20.83 45.64

Bond value (Rs) 106.49 106.53 139.59 127.18

Current market price of bonds (Rs) 95 100 110 115

Annual yields (by trial & error) 16.86% 14.00% 10.76% 9.60%

Semi-annual yield (by trial & error) 8.43% 7.00% 5.39% 4.82%

Value of a bond that pays interest half-yearly can be calculated by the following equation:

Problem 9

( )( ) 485.57 Rs2584.0050,10236.75940.1060

PVF050,1PVAFPVAF60

)07.1(

050,1

)07.1(

60bond of Value

%7,20%7,10%7,20

n

20

11t

tt

=×+−×=

×+−×=

+=∑=

n2

2

kn

t

2

k

t21n2

1t

0)1(

B

)1(

)INT(B

dd ++

+= ∑

=

Page 4: Ch 03financial management notes2

Problem 10

Problem 11

Annual interest rate 15%

Quarterly interest rate 3.75%

Market price (Rs) 875

Maturity value (Rs) 1000

Quarterly periods 60

New interest rate 12.00%

New quarterly interest rate 3.00%

Stated yield

Quarterly interest (Rs) 37.5

Market price (Rs) 875

Quarterly yield 4.34%

Expected yield

Quarterly interest (Rs) 30

Market price (Rs) 875

Quarterly yield 3.50%

Quarterly yields can be found by trial and error. You can also use the Excel formula for rate to calculate yield:

= RATE(nper,pmt,pv,[fv],[type],guess)

Problem 12

Value of perpetual preference share =12/0.10 = Rs 120 120

%60.5YTC

)YTC1(

150,1

)YTC1(

50000,1

16 periods 5%;interest yearly -Half :years 8in redeemable bond year20

%22.5YTC

)YTC1(

100,1

)YTC1(

50000,1

%32.5YTC

)YTC1(

150,1

)YTC1(

50000,1

24 periods 5%;interest yearly -Half :years 12in redeemable bond year20

n

16

1t

tt

n

24

1t

tt

n

24

1t

tt

=

++

+=

=

++

+=

=

++

+=

=

=

=

%60.5YTC

)YTC1(

150,1

)YTC1(

50000,1

16 periods 5%;interest yearly -Half :years 8in redeemable bond year20

%22.5YTC

)YTC1(

100,1

)YTC1(

50000,1

%32.5YTC

)YTC1(

150,1

)YTC1(

50000,1

24 periods 5%;interest yearly -Half :years 12in redeemable bond year20

n

16

1tt

t

n

24

1tt

t

n

24

1tt

t

=

++

+=

=

++

+=

=

++

+=

=

=

=

Page 5: Ch 03financial management notes2

Problem 13

Expected DPS (Rs) 3.00

Current share price (Rs) 50.00

Share price after 1 year (Rs) 53.00

Required rate 0.10

PV of share (Rs):

50.91

Return on share:

12%

Problem 14

Share price (Rs) 75.00

Capitalisation rate 0.12

Year DPS Share price (Rs) PVF PV

(Rs) at 12% (Rs)

0

1 7.50 0.8929 6.70

2 7.50 0.7972 5.98

3 9.00 0.7118 6.41

4 15.00 0.6355 9.53

4 70.00 0.6355 44.49

Value of the share 73.10

It is a desirable investment since the present value of the share is more than its current price.

Problem 15

Current share price 60.00

DPS 1.50

Growth rate 0.10

Required rate 0.12

Value of the share:

82.5

Share should be bought

You can use the Excel formula to calculate value of redeemable preference share: =PV(rate,nper,pmt,[fv],[type])

87.114Rs513.0110868.412

PVF110PVAF12

)10.1(

110

)10.1(

12share preference redeemable of Value

%10,7%10,7

7

7

1tt

t

=×+×=

×+×=

+= ∑=

1.1

533

)k1(

PDIV=P

1e

11 +=

+

+

50.8202.0

65.1

10.012.0

)1.1(5.1

gk

DIVP

e

10

==−

=

−=

( )=

−+=

−+=

50

50533

P

PPDIVr

0

011e

Page 6: Ch 03financial management notes2

Problem 16

Earnings growth up to 7 years 0.15

Perpetual growth after 7 years 0.09

Required rate for 7 years 0.12

Required rate after 7 years 0.10

EPS 4.00

DPS 2.00

DPS PVF PV

Year (Rs) @ 12% (Rs)

0 2.00

1 2.30 0.8929 2.05

2 2.65 0.7972 2.11

3 3.04 0.7118 2.17

4 3.50 0.6355 2.22

5 4.02 0.5674 2.28

6 4.63 0.5066 2.34

7 5.32 0.4523 2.41

15.58

Present value of dividend growing perpetually after 7 years

579.88

PV of Rs 579.88

297.57

Value of share: 15.58 + 297.57 313.16

Problem 17

(Rs)

Current EPS 5

Retention ratio, b 0.6

Current DPS, DIV0 = EPS0(1 - b) 2

Rate of return, r 0.15

Required rate, ke 0.13

Current share price (Rs) 60

Growth, g = b x r 0.09

Expected EPS (Rs): EPS1 = EPS0(1+g) = 5 x 1.09 5.45

Expected DPS (Rs): DIV1 = DIV0(1+g) = 2 x 1.09 2.18

Expected retained earnings, RE1 = EPS1 - DIV1 3.27

Value of share if g = 0

41.92

Value of share if g = 9%

54.50

Value of growth opportunities, Vg (Rs): 54.50 - 41.92 12.58

The following formula can be used to find Vg:

12.58

Problem 18

P Rs 579.887 =+

−=

−=

DIV g

k g

n

e n

7 1 5 32 1 09

0 10 0 09

( ) . ( . )

. .

297.57 Rs0.5132579.8810.188.579 7=×=

013.0

45.5

gk

EPSP

e

10

−=

−=

PD I V

01

=−

=+

−=

k ge

2 1 0 9

0 1 3 0 9

2 1 8

0 0 4

( . )

. .

.

.

( )

( )

( )

( )Vg =

−=

−=

RE r k

k k g

e

e e

1 3 27 15 13

13 13 09

0654

0052

. . .

. . .

.

.

Page 7: Ch 03financial management notes2

Total assets (Rs) 80,000

Equity (Rs) 80,000

Number of shares 10,000

Equity per share: 80,000/10,000 8

Internal rate of return, r 10%

Earnings: 10% × 80,000 8000

EPS 0.8

Capitalisation rate, k 12%

Retention ratio, b 70%

Dividend per share, DIV: 30% × 8 0.24

Growth rate, g: b × r 7%

Expected DIV: 0.240 × 1.07 0.2568

PV of share: 0.2568/(0.12 – 0.07) 5.14

Problem 19

Last year's DPS (Rs) 3

Current market price (Rs) 80

Required rate 0.1

Scenario 1: Scenario 2: Scenario 3:

No growth Perpetual growth Different

growth rates

Growth rate 0 0.06

Value of share (Rs) 3/.10= Rs 30 3(1.06)/.1 - .06 =Rs

79.5

Rs 68.84 (see

below)

Scenario 3: Different growth rates

Growth rate Year DPS (Rs) PVF

1-3 years 0.12 0 3.00

4-6 years 0.07 1 3.36 0.9091

7 year and onwards 0.04 2 3.76 0.8264

3 4.21 0.7513

4 4.51 0.6830

5 4.83 0.6209

6 5.16 0.5645

PV of DPS at 10% from year 1 to 6

PV of DPS growing perpetually at the end of 6 years:

5.16(1.04)/(.1 - .04)

5.37 16.6667

PV of value of Rs 89.50 received at the end of 6th year:

89.5 x 0.5645

0.5645

Value of share (Rs): 18.32 + 50.42

Problem 20

Current DPS (Rs) 5

Current growth rate 0.05

New growth 0.1

Capitalisation rate 0.15

Share price (Rs) if g = 5%, [5(1.05)/(0.15-.05)] 52.5

Share price (Rs) if g = 10%, [5(1.1)/(0.15-0.1)] 110

Problem 21

Face value (Rs) 10

When the firm’s growth increases from 5% to 10%, the share prices rises from Rs 52.50 to Rs 110. It is quite

logical since price depends on expected dividend and future growth opportunities.

Page 8: Ch 03financial management notes2

EPS (Rs) Dividend rate

Market price

(Rs) DPS (Rs)

Bajaj 11.9 0.50 275.0 5.0

Hero Honda 10.2 0.22 135.0 2.2

Kinetic 12.0 0.25 177.5 2.5

Maharashtra. Scooters 20.1 0.25 205.0 2.5

Problem 22

DPS in year 0 (Rs) 3.5

DPS in year 10, (Rs) 10.5

Period (years) 10

Dividend growth rate: [(10.5/3.5)1/10

-1] 0.1161

Share price (Rs) 75

Expected dividend yield [3.5(1.1161)/75] 0.0521

Capitalisation rate: 0.1161 + 0.0521 0.1682

Problem 23

Current EPS (Rs) 8.6

Growth 0.12

Payout 0.4

Retention ratio: 1 - .4 0.6

Capitalisation rate 0.18

DPS (Rs) 3.44

Expected EPS: 8.6 × 1.12 9.63

Expected dividend: 3.44 ×1.12 3.85

Expected retained earnings: 9.63 x 0.60 5.78

Share value (12% growth) (Rs) 64.21

Share value (no growth) (Rs) 53.51

Value of growth opportunities: 10.70

Firm's rate of return:

0.20

Value of growth opportunities: 10.70

Problem 24

12% 14% Pref. Equity

debenture debenture share share

Face value (Rs) 1000 1000 100 100

Interest or dividend rate 12% 14% 15%

Payment frequency annual half-yearly annual annual

Maturity (years) 12 10

Compounding periods 12 20

Maturity value (Rs) 1000 1000

Principal amount (Rs crore) 50 30 100 200

Required rate of return 0.100 0.060 0.135 0.150

PVAF (annuity) 6.8137 11.4699

PVF (lump sum) 0.3186 0.3118

Interest/dividend amount (Rs) 120 70 15 12

Bajaj has the highest current share price but it also pays maximum dividend (as a percentage of its earnings). On the other hand, Maharashtra Scooters has maximum

EPS, lowest payout, lowest dividend yield and it is ranked third in terms of share price. Hero Honda has lowest EPS and lowest share price. Kinetic ranks at third place

in terms of EPS, DPS and share price. It appears that the market is giving consideration to the companies’ current performance as well as future growth prospects.

6./12.b/gr

brg

==

×=

( )( )

( )( ) 0108.

1156.

12.18.18.

18.20.78.5

gkk

krREV

ee

e1g =

−=

−=

Page 9: Ch 03financial management notes2

Perpetual growth rate 0.08

Market value of each debenture or share (Rs) 120 x 6.8137 70 x 11.4699

+ 1000 x .3186 + 1000 x .3118 15/.135 12/(.15 - .08)

1136.27 1114.70 111.11 171.43

Total market value (Rs crore) 56.81 33.44 111.11 342.86

Problem 25

Net profit (Rs crore) 50

Number of shares (crore) 2

EPS: 50/2 25

ROE 25%

Capitalisation rate, k 12%

Payout 60%

Retention ratio, b 40%

Dividend per share, DIV: 60% × 25 15

Growth rate, g: b × r: 40% × 25% 10%

Expected DIV: 25 × 1.10 16.5

Current share price (Rs), P0 240

Expected dividend yield: DIV1/ P0 6.88%

Capitalisation rate, k = (DIV1/ P0) + g 16.88%

Problem 26

Net earnings (Rs million) 25

Paid-up capital (Rs million) 200

Par value of share (Rs) 10

Number of shares: paid-up capital/par value of share

(mn.)

20

EPS = dividend per share, DIV (assumed): 25/20 1.25

Growth (without investment) 2%

Opportunity cost of capital 10%

Share price: P0 = (1.25 × 1.02)/ (0.10 – 0.02) 15.94

Investment (Rs million) 10

Earnings from investment (Rs million) 2

Life of investment, years 15

Investment’s NPV: PV of Rs 2 million for 15 years at

10%: 2*7.6061-10 5.21

Share price (with investment): 15.94 + 5.21 (million) 21.15

Problem 27

Earnings (without project) (Rs crore) 80

Number of shares (crore) 5

EPS: 80/5 16

Required rate of return 12.50%

Share price (without project): 16/0.125 128

Earnings from project after one year (Rs crore) 20

EPS from project: 20/5 4

Growth in earnings from project after one year 8%

Required rate of return 12.50%

Value of growth opportunities: 4/(0.125 – 0.08) 88.89

Share value with project: 128 + 88.89 216.89

EPS after project 20

P/E ratio: 216.89/20 10.84

Problem 28

Number of shares (million) 10

Page 10: Ch 03financial management notes2

Net cash profits (Rs million) 80

Cash EPS: 80/10 8

Opportunity cost of capital 20%

(a) (i) Retention ratio 40%

Return on retained earnings 20%

Growth: 40% × 20% 8%

Expected Dividend per share, DIV1: 8 × (1 – 0.40) × 1.08 5.18

Share price: 5.18/(0.20 – 0.08) 43.20

(a) (ii) Retention ratio 60%

Return on retained earnings 20%

Growth: 60% × 20% 12%

Expected Dividend per share, DIV1: 8 × (1 – 0.60) × 1.12 3.58

Share price: 3.58/(0.20 – 0.12) 44.80

(b) (i) Retention ratio 40%

Return on retained earnings 24%

Growth: 40% × 24% 9.60%

Expected Dividend per share, DIV1: 8 × (1 – 0.40) × 1.096 5.26

Share price: 5.26/(0.20 – 0.096) 50.58

(b) (ii) Retention ratio 60%

Return on retained earnings 24%

Growth: 60% × 24% 14.40%

Expected Dividend per share, DIV1: 8 × (1 – 0.60) × 1.144 3.66

Share price: 3.66/(0.20 – 0.144) 65.37

Problem 29

Year EPS DPS

Cash EPS (perpetuity) 10 0 10.00 5.00

Payout 100% 1 10.90 5.45

DIV 10 2 11.88 5.94

Opportunity cost of capital 15% 3 12.95 6.48

(a) Share price: 10/0.15 66.67 4 14.12 7.06

(b) Expansion opportunity 5 15.39 7.69

Earnings retention 50% 6 16.77 8.39

Rate of return 18% 7 18.28 9.14

Growth: 50% × 18% 9% 8 19.93 9.96

DIV1: 5 × 1.09 5.45 9 21.72 10.86

Period of growth, years 10 10 23.67 11.84

Value of growth opportunity:

37.68

Value after growth opportunity: (10×1.0910

/0.15) 157.80

PV after growth opportunity: 157.80 × 1/1.1510 39.01

Total share price with growth opportunity: 37.68 + 39.01 76.69

37.68 Rs4148.067.1645.5

15.1

09.11

09.015.0

145.5

k1

g11

gk

1DIVV

10

n

1

=××=

−×

−×=

+

+−×

−×=

Page 11: Ch 03financial management notes2

PVF

Page 12: Ch 03financial management notes2

PV (Rs) 6% PV (Rs)

107.14 0.943 113.21

95.66 0.890 106.80

797.19 0.840 940.37

1000.00 1160.38

PV (Rs) PVF 6% PV (Rs)

53.57 0.943 56.60

47.83 0.890 53.40

754.49 0.840 890.00

855.89 1000.00

PV (Rs) 6% PV (Rs)

107.14 0.943 113.21

95.66 0.890 106.80

85.41 0.840 100.75

76.26 0.792 95.05

68.09 0.747 89.67

60.80 0.705 84.60

54.28 0.665 79.81

452.35 0.627 702.70

1000.00 1372.59

PV (Rs) PVF 6% PV (Rs)

53.57 0.943 56.60

47.83 0.890 53.40

42.71 0.840 50.38

38.13 0.792 47.53

34.05 0.747 44.84

30.40 0.705 42.30

27.14 0.665 39.90

428.12 0.627 665.06

701.94 1000.00

16%

PV PVF PV

432.57 3.274 392.92

567.43 0.476 476.11

1000.00 869.03

8%

PV PVF PV

441.61 6.710 402.60

558.39 0.463 463.19

1,000.00 865.80

4%

PV PVF PV

892.65 13.590 815.42

Page 13: Ch 03financial management notes2

553.68 0.456 456.39

1,446.32 1,271.81

Page 14: Ch 03financial management notes2

yield Annual (i)

bond year4

)y1(

5

y1

5110

yieldyearly -Half )ii(

)y1(

10

y1

10110

yield Annual (i)

bond year3

)y1(

5

y1

5100

yieldyearly -Half )ii(

)y1(

10010

y1

10100

yield Annual (i)

bond year2

)y1(

1005

y1

595

yieldyearly -Half )ii(

%15y1

1001095

yield Annual (i)

bondyear -1

2

++

+=

++

+=

++

+=

+

++

+=

+

++

+=

=+

+=

Page 15: Ch 03financial management notes2

114.87

)y1(

5

y1

5115

yieldyearly -Half )ii(

)y1(

10

y1

10115

yield Annual (i)

bond year4

)y1(

5

y1

5110

yieldyearly -Half )ii(

)y1(y1110

++

+=

++

+=

++

+=

++

+=

Page 16: Ch 03financial management notes2
Page 17: Ch 03financial management notes2

PV (Rs)

3.05

3.11

3.17

3.08

3.00

2.91

18.32

89.50

50.52

68.84

Page 18: Ch 03financial management notes2

Payout Earnings

yield

Dividend

yield

0.420 0.0433 0.0182

0.216 0.0756 0.0163

0.208 0.0676 0.0141

0.124 0.0980 0.0122

Bajaj has the highest current share price but it also pays maximum dividend (as a percentage of its earnings). On the other hand, Maharashtra Scooters has maximum

EPS, lowest payout, lowest dividend yield and it is ranked third in terms of share price. Hero Honda has lowest EPS and lowest share price. Kinetic ranks at third place

in terms of EPS, DPS and share price. It appears that the market is giving consideration to the companies’ current performance as well as future growth prospects.

Page 19: Ch 03financial management notes2
Page 20: Ch 03financial management notes2
Page 21: Ch 03financial management notes2
Page 22: Ch 03financial management notes2
Page 23: Ch 03financial management notes2
Page 24: Ch 03financial management notes2

yield Annual (i)

bond year4

%15.3)y1(

1005

)y1(

5

)y1(

5

)y1(

5

)y1(

5

y1

5110

yieldyearly -Half )ii(

%24.6)y1(

10010

)y1(

10

y1

10110

yield Annual (i)

bond year3

%5)y1(

1005

)y1(

5

)y1(

5

y1

5100

yieldyearly -Half )ii(

%10)y1(

10010

y1

10100

yield Annual (i)

bond year2

%8.7)y1(

1005

y1

595

yieldyearly -Half )ii(

%15y1

1001095

yield Annual (i)

bondyear -1

65432

32

432

2

2

=+

++

++

++

++

++

+=

=+

++

++

+=

=+

++

++

++

+=

=+

++

+=

=+

++

+=

=+

+=

Page 25: Ch 03financial management notes2

%87.2)y1(

1005

)y1(

5

)y1(

5

)y1(

5

)y1(

5

)y1(

5

)y1(

5

y1

5115

yieldyearly -Half )ii(

%70.5)y1(

10010

)y1(

10

)y1(

10

y1

10115

yield Annual (i)

bond year4

%15.3)y1(

1005

)y1(

5

)y1(

5

)y1(

5

)y1(

5

y1

5110

yieldyearly -Half )ii(

%24.6)y1()y1(y1

110

8765432

432

65432

32

=+

++

++

++

++

++

++

++

+=

=+

++

++

++

+=

=+

++

++

++

++

++

+=

=+

++

++

=