The paper “ Strategic Corporate Finance - Security Analysis and Portfolio Management” is a breathtaking example of a finance & accounting assignment. Calculate the Net asset value per share for BP. Net asset value= Net asset value/ Number of ordinary shares. Net asset value=2013= 79,083,000,000/ 18510000000= 4.272452014= 72,371,000,000/18260000000=3.96336b) Cost of capital i. Calculate the cost of equity capital for BP using the Capital Asset Pricing Model. Re = rf + (rm – rf) * β Cost of equity= 1+ (6-1)* (1.34+1.74/2)= 1 + 5*1.54= 1+7.7=8.7%ii. Calculate the cost of debt capital (assume a taxation rate of 20%). Cost of Debt Capital = Coupon Rate on Bonds (1 - tax rate)= 4 (1-0.2)= 4 * 0.8=3.2%iii.
Calculate the weighted average cost of capital (WACC). (use the share price as of 31 January 2014 for the value of equity) WACC = * Re + * Rd * (1 – Tc)= 72371.01/(72371.01 +69,419)*8.7 + 69,419/(72371.01 +69,419)*3.2=72371.01/141790.01*8.7 + 69419/141790.01*3.2=4.44 + 1.5667 = 6.0067 %c) Dividend growth modelUse the dividend growth model to calculate the theoretical price of a share under the following assumptions: Stock Price = Dividends (Div) / (Expected Return (R) - Dividend Growth Rate (G)(i) g = 0%P= D/R-G=23.85* 409.3/8.7= 1122.05g = 2%= P= D/R-G=23.85* 409.3/8.7-2= 9761.805/6.7=1456.99d) Value per share using the price-earnings (p/e) ratioCalculate the price-earnings ratio using the share prices as of 31 December 2013 (488p) and 31 December 2014 (409p) and the EPS figure for 2013.Price-earnings ratio= Market Value per Share / Earnings per Share (EPS)=488/75.12=6.5Price-earnings ratio= Market Value per Share / Earnings per Share (EPS)=409/75.12=5.44TASK 2Calculate the value of a BP share and advise your clienta) Use the information from your calculations above and any information other you deem appropriate to arrive at the valuation of a BP share.
In doing so critically evaluate the Price-Earnings and Dividend Growth models used in your calculations and relate your calculations to the current and historic share price information as appropriate.
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