Acelec 331

FA 2 INTRINSIC VALUATION
Problem Solving
Problem 1: Straight Bonds: ABC Corporation plans to purchase an 8%, 15-year,
P5,000,000 face value bonds. The entity would like to earn a minimum return of
10%. How much should ABC value and pay for the bonds? *

Your answer

Problem 2: Serial Bonds: X Corporation is deciding whether to buy 200 pieces of

11%, P10,000 par value bonds of Triple A Corporation. They will be issued on Jan.
1, 2022. The bonds mature every year end over 5 years. How much should X offer
to purchase the bonds so that it will earn 13%? *

Your answer

Problem 3: Callable Bonds: On Jan. 1, 2021, Z Corporation paid P3,300,000 for a

9%, P3,000,000 face value bond. The bond pays interest every June 30 and Dec. 31,
and is due on Dec. 31, 2028. However, Z foresees that the issuer will likely call the
bonds on Dec. 31, 2026 for a call price of 103. As a financial analyst, you deem it
appropriate to use a risk-adjusted return of 7% for Z’s investment. Based on your
analysis, how much did Z overpay or (underpay) for its investment? Indicate your
answer in a parenthesis if it is an underpayment. *

Your answer

Problem 4: Ordinary Shares, no growth rate: The expected rate of return of the
shareholders is 18%. The expected dividend to be received one year from now is
P27. What should the value of each share be? *

Your answer

Problem 5: Ordinary Shares, constant growth rateThe expected rate of return of the
shareholders is 18%. The dividend per share was P27 last year. The growth rate of
the share prices is 8%. There are 300,000 shares issued. How much is the total
value of the equity? *
Your answer

Problem 6: Ordinary Shares, Supernormal Growth: The financial manager is

deciding whether to invest in XYZ Corporation ordinary shares on Jan. 1, 2022.
Dividends of XYZ Corporation was announced to be P30 per share payable on Dec.
31, 2021. Forecasted dividend growth rate is 7% for 2022, 8% for 2023 and 4% for
the succeeding years. What is the maximum price per share that the financial
manager be willing to pay on Jan. 1, 2022 if the required minimum return is 10%? *

Your answer

Problem 7: Preference Shares, Definite Life: A 9%, 3-year P5,000,000 par value
preference share has a liquidating value of P5,200,000. If you are willing to buy it if
it provides a 12% return on investment, how much should you pay for it? *

Your answer