You are required to project an earnings statement and balance sheet for Johnson Matthey plc for the next five year discussing both the assumptions within your forecast and the implications of your projections for the performance, efficiency, risk and liquidity of the business.
You are required to:
(i) Estimate the weighted average cost of capital used by the company as a whole in undertaking its impairment tests based upon the information in note 16 and elsewhere in the 2012 accounts.
(ii) Compare the estimate derived in (i) with your own estimate using external market data and comment upon the implications of any discrepancy between the two estimates for the firm’s investment decision making and performance reporting.
On the basis of your five year forecast in question 1 you are required to:
Produce a spot valuation of the equity of the company (price per share) and an estimate of the potential range of share prices that the assumptions in your valuation model imply.
(ii) Discuss the extent to which your estimate of the range of share prices in (i) explain the observed volatility of share prices in the market.
Using both financial measures and structural analysis assess the exposure of Johnson Matthey to default risk. You should discuss the extent to which the two approaches are complementary and the extent to which they differ.
Our understanding of value is controlled by three, theoretical entities: the net present value model, the theory of capital asset pricing and the value of options through the option pricing model. You are required to explain how these models relate to the theory of value and to assess the validity of this statement.
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