Methods of share valuation:

1. Net Assets Value in total

= Reserves + Ordinary share capital
= RM4,000,000+ RM1(10,000,000)
= RM14,000,000

Net Assets Value per share

=RM14,000,000 ÷ 10,000,000
=RM1.40
Methods of share valuation:

2. Price Earnings (PE) Method in total

= Net profit after taxation x Price-earnings ratio
= RM1,000,000 x 12 times (proxy)
= RM12,000,000

Price Earnings (PE) Method per share

= RM12,000,000 ÷ 10,000,000
= RM1.20
Methods of share valuation:

3. Dividend growth method

Year Dividend Discount Factor Present Value
(RM) @10% (RM)
1 500,000 x 1.05 = 525,000 0.909 477,278
2 525,000 x 1.05 = 551,250 0.826 455,553
3 551,250 x (1+0.04)/
0.826 7,896,252
onwards (0.10 - 0.04) = 9,555,000
Total = 8,829,083

Dividend Growth method in total Dividend Growth method per share

= RM 8,829,083 = RM 8,829,083/10,000,000
= RM 0.8829
• The ONE (1) share valuation method which is not listed in part (a) above is
Discounted Cash Flow.

TWO (2) limitations of the selected share valuation method:

(i) Limitation for Net assets value method

 Values are based on historical costs, which ignores the capacity of assets to
generate future earnings.
 Value of assets is distorted by accounting policies and conventions.

(ii) Price-earnings method

 Accounting profits are distorted by accounting policies and conventions.
 A single year’s P/E ratio may not be a good basis due to earnings volatility and
abnormal share price movements.
(b) In a strong and efficient stock market, stock
prices adequately and fairly reflect not only public
and past information but also private or insider
information. Eco Green's CFO told his cousin Tony
to invest in Eco Green with the intention of earning
abnormal profit from the information that can be
considered an illegal case. In my opinion, I do not
think that Tony would be able to earn abnormal
returns in the long term because he cannot
consistently obtain inside information from other
companies.