• April 4th, 2016

Financial Analysis and valuation questions

Paper, Order, or Assignment Requirements


The company is Myers Holdings Limited(MYR). If needed assume the required rate of return for equity investors in your company is 10%, and the corporate tax rate is 30%.

Part (A) Free Cash Flows and Discounted Cash Flow (DCF) Analysis (10 marks)

Using the last five years of financial data from DatAnalysis, calculate your company’s free cash flows for the last five years. Tabulate your results, making sure that you show all relevant data used in the calculation.

Do not quote the Free Cash Flow number from DatAnalysis as it is not calculated correctly.
The best way to calculate Free CashFlow is to use the Cash Flow Statement and make adjustments (as discussed in Chapter 4 of the Financial Statement Analysis and Security valuation textbook 5th Edition by Stephen H. Penman.)

Based on the last five years of free cash flows, explain whether or not Discounted Cash Flow (DCF) analysis would be an appropriate valuation method your company.

Part (B) Implied Growth Rates from Analyst Forecasts (Reverse Engineering with the Residual Earnings Model) (20 marks)

Using the book value per share and the forecast earnings per share for the next two years from DatAnalysis, determine the implied growth rate in Residual Earnings and the implied EPS growth path for the five years following the year two forecast.

Plot the growth path to obtain a figure similar to the example below


Discuss how the results of your analysis and your graph could be used by analysts to make buy or sell decisions. Combining the results of your analysis with any source of relevant company information in the media, discuss whether you think the implied growth rates you estimated seem too high or too low, and then make a buy or sell recommendation. Hint: Examples of sources you might try are The Australian Financial Review, Yahoo Finance, Reuters or Bloomberg.

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