What is the value of Wonderland’s shares, assuming that the financials are
Calculate the expected return over the four-year period for each of the three
b) Calculate the standard deviation of returns over the four-year for each of the three
c) Use your findings in parts a and b to calculate the coefficient of variation for each of
the three alternatives. Based on your findings above, which of the three investment
alternatives would you recommend? Why?
(1 X 3 = 3 Marks)
a) Olivia Stevens is trying to value Wonderland’s shares, which are not growing at all.
Wonderland declared and paid a $5 dividend last year. The required rate of return for its
industry is 11%, but Olivia is unsure about the financial reporting integrity of Wonderland’s
finance team, which has short-term focus. She decides to add an extra 1% ‘credibility’ risk
premium to the required return as part of her valuation analysis.
a) What is the value of Wonderland’s shares, assuming that the financials are
b) What is the value of Wonderland’s shares, assuming that Olivia includes the extra 1%
‘credibility’ risk premium?
c) What is the difference between the values found in parts a and b, and how might one
interpret that difference?
d) What are the key issues for valuation when the finance team adopts a short-term
focus? (1 X 4 = 4 Marks)
b) Consider the mixed streams of cash flows shown in the following table.
|Cash flow stream|
|1||$50 000||$10 000|
|2||40 000||20 000|
|3||30 000||30 000|
|4||20 000||40 000|
|5||10 000||50 000|
|Totals||$150 000||$150 000|
a) Calculate the present value of each stream using a 15% discount rate.
b) Compare the calculated present values and discuss them in light of the fact that the
undiscounted cash flows total $150 000 in each case.
(1 X 2 = 2 Marks)
|Part 3||(Word Limit: 1500+/-100) (10 Marks)|
|Note: students are strongly urged to read reviewed academic journal articles|
|and provide at least three academic journal articles in the reference.|
|Carefully consider the following two quotations:|
|“Stakeholder engagement has been defined as practices that the organisation undertakes|
|to involve stakeholders in a positive manner in organisational activities. In defining|
|stakeholder engagement in this manner, it is manifest that many areas of organisational|
|activity involve stakeholder engagement. Stakeholder engagement is not the exclusive|
|domain of socially responsible firms, nor is it the exclusive domain of socially|
|responsibility activities within firms” (Greenwood 2007: p.317-318).|
|The above quotation is taken from: Greenwood, M. (2007), ‘Stakeholder engagement: beyond|