# Financial Managment

Topics: Dividend yield, P/E ratio, Stock market Pages: 4 (1037 words) Published: May 13, 2013
SeaHorse – Stock Evaluation Group Project – Financial Management Section II

Date: 15-Apr-13 By: Spiros KOURTIS – Christos THEODOROU Evi BAXEVANAKI – Georgia LIAPI. Page 1

Key data for the calculations: • • • Stock issued for Seahorse = [IS] = 2 Shareholders x 150,000 shares / each = 300,000 stocks Dividends paid D0 = 2 x \$320,000 = \$640,000 or DPS = \$640,000 / 300,000 = \$2.13 Calculation of company SeaHorse growth rate gSH = ( 1 – Dividend pay out Ratio) x ROE Dividend Payout Ratio (DPR) is equal to:

\$640.000 Dividends Dividends Shares = DPS = 300.000 = 42.99% DPR = = EPS 5.08 Net.Income Net.Income Shares Therefore gSH = ( 1 – 42.99% ) x 25% = 14.25% • Calculation of Industry average growth rate Since Nautigas EPS = -0.32 due to accounting write off we have to recalculated the new growth rate for the Industry using Nautigas EPS = \$1.97 without the accounting write off. Therefore the new EPSindustry=[1.09 + 1.16 +1.97]/3 = \$1.406 Using the same method as above we have: gindustry = ( 1 – DPRindustry ) x ROEindustry = ( 1 – DPSindustry / EPSindustry ) x ROEindustry or gindustry = ( 1 – 0.41 / 1.406 ) x 13 = 9.21 %

Question No1. Growth of the SeaHorse gSH = 14.25%, D0 = \$640,000 / 300,000 = \$ 2.13 and kS=20% Applying constant growth model (Gordon’s formula):

ˆ D (1+ g) = \$2.13(1+14.25%) = \$42.32 P0 = 0 ks − g 20% −14.25% Question No2. Growth of the SeaHorse gSH = 14.25%, gindustry = ( 1 – 0.41 / 1.406 ) x 13 = 9.21 % and D0 = \$640,000 / 300,000 = \$ 2.13 and kS change from 20% to 17%.

P0 = \$2.13 + \$2.44 x PVIFA17% 1 + \$2.79 x PVIFA17% 2 + \$3.20 x PVIFA17% 3 + \$3.66 x PVIFA17% 4 + \$4.19 x PVIFA17% 5 + P5 where P5 = D5 x (1+ gindustry) / [kS - gindustry] = \$58.128

Substituting all numbers we have P0 = \$ 36.44
Page 2

Graphical Representation of the calculation

Question No3 We know that P / E = Price of Stock / Earning per share (EPS). Therefore by using the available data the Industry average value is: P/E = \$16.91 / \$1.406 or P/E = 12,027...