INV3701 Assignment 2 Semester 1 & 2 2021.

Equity Asset Valuation INV3701 Semesters 1 and 2 Department of Finance, Risk Management and Banking IMPORTANT INFORMATION Please register on myUnisa, activate your myLife e-mail account and make sure that you have regular access to the myUnisa module. website, INV-S1/S2, as well as your group website. ASSIGNMENT 02 DUE DATE: 30 JULY 2021 SEMESTER 1: Unique number SEMESTER 2: Unique number Aim: To evaluate your knowledge of some of the fundamental aspects of equity valuation: application and process, equity return concepts, the dividend discount model and free the cash flow model, residual income model and market-based valuation. Refer to lessons 1 to 6 in the study guide, which include chapters 1, 3 to 5 and, 7 to 10 in the prescribed book. Answer the following questions and submit your assignment online at . 2 The following assignment contains 20 multiple-choice questions. [20 marks] Questions 1. Which one of the following statements is most correct? 1. FCFF model is an example of a relative valuation model. 2. Free cash flow to the firm is cash flow available only to common shareholders. 3. The value of a firm is equal to the value of the operating assets and the non-operating assets. Use the following information to answer question 2. Savanna Limited has free cash flow to the firm (FCFF) and free cash flow to equity (FCFE) of R3.46 and R5.22 million, respectively. The required rate of equity is 10.4% and the weighted average cost of capital is 16.1%. Savanna Limited has outstanding debt of R11.75 million. The following information on the growth rates is available: Growth rate FCFE 4.5% FCFF 6.5% 2. Calculate the total value of Savanna’s equity by using the FCFF valuation method. 1. R19.22 million 2. R26.63 million 3. R38.38 million Value = FCFF1 /Wacc -g = 3.46(1.065)/0.161-0.065 = R38.38