Shareholder Value Analysis Tutorial Exercise

1. What’s the difference between the net asset value (NAV) method and the price-to-book
(P/B) method of valuing a business? Discuss.

2. In the current year, ABC Co. earned a profit before tax of $27.4 million. The corporate tax
rate is 35%. In addition, the firm has 150 million shares traded in the stock exchange and a
market value of $603 million.

Calculate the firm’s EPS, share price and P/E ratio, respectively.

3. What are the strengths and weaknesses of P/E multiple valuation method? Discuss.

4. Minbari Ltd. has provided you the following info regarding its free cash flow (FCF) for this
year:

Operating Profit (EBIT) $28 m

Depreciation $6 m
Interest expense $4.5m
Capital spending $7.5m
Corp. tax rate 33%

The management believes that its FCF will continue to grow at 9% p.a. for the next 2 years,
after which the growth rate will drop to 6%, indefinitely. The business is financed by $125
million of debt, and its WACC is 8%. In addition, the company has 40 million shares
outstanding.

Based on the info above, estimate Minbari’s enterprise value, market capitalization value
and its share price.

5. Moolah Ltd. currently earns $3.45 per share. It retains 70% of its profit to reinvest at an
average return of 14%. Its Ke is 15%. Using the dividend growth model valuation method,
determine the value of XYZ’s shares.

6. Principle of DCF

7. Dividend Valuation Model