Albert
9.The payback period for Project A is: 4+(20-3-4-4-4) ÷5= 5 years
The payback period for Project B is: 2+(25-9-8) ÷8=3 years
Advantages of using the payback period method:
), indicate the payback period(
) for Project A and
Project B, respectively, and briefly describe the advantages and disadvantages of using the payback period method.
8
2.6
59.4
30
Albert
Albert 5
Adjusted P/E ratio model Albert
1 2 3 4 5
Albert
Albert
A B C D E 15.00
16
85%
12%
20
B
=12%
9
8
8
6.4
8
5.7
6
3.8
6
3.4
6.6
3.3
4
1.8
4
1.6
3
1.1
2.6
0.9
57.2
11 Based on the information provided in Material Four(
), (i)identify the three driving factors that affect the P/E ratio
(
) (ii)with the related financial information provided for 2012, calculate the share values of Albert Company using
the P/E ratio model(
)and the adjusted P/E ratio model(
)respectively, and evaluate whether the
transaction price of USD 16 per share was over-priced or under-priced using each model;(iii)briefly explain why Henry
10 Based on the information provided in Material Four(
), calculate the net present value(
) and present value
index(
)for Project A and Project B, respectively, and decide whether the net present value method and the present
1 The calculation is simple;
2 It is easy for decision makers to understand;
3 It gives a higher level indication of the projects’ liquidity and risk.
Disadvantages of using the payback period method:
36
P/E Price-to-earnings ratio model
2012
20.10
16%
16.00
13%
15.40
12%
11.20
9%
12.30
10%
12%
1 2 3
4
5
6 7
8
Albert
9 Based on the information provided in Material Four(6731
8
3. 1
2
:
①
②
③
3
:
①
②
③
4. 1 3
2015 2
5. 1 2 3
6. 1
1
2
2
3
3
4
4
2/3
6 20%~30%
7. 1 2
5
1
12
5000
8. 1 Albert
2 Albert
3 85%
4 Albert
5 Albert
6
Albert
7 Albert
8
9 Albert
10 2008 2008
value index method is more appropriate for the project evaluation in terms of the efficiency of investment, given the same
project period. Please provide a reason to support your answer.
Company finally decided to use the adjusted P/E ratio model when evaluating Albert Company.
1.
1. 1
①
/
②
③
④
⑤
2 ① ② ③ ④ ⑤
⑥
2. 1 2 3 4
/ ( (
4 1
4
) )
5 19 1/3
5 3
1/3 5
1 This method ignores time value of money by assuming values are the same at different times;
2 This method does not consider cash flows after the payback period, therefore giving no indication of the profitability;
0.80
Henry 18%
1.Albert
Albert
2.Albert
3.Albert
4.Albert
Albert 5.Albert 6. 7.2008
Albert
8.Albert A
25
B
A
=12%
1
3
2.7
2
4
3.2
3
4
2.8
4
4
2.5
5
5
2.8
6
7.4
3.7
7
8
3.6
8
8
3.2
9
8
2.9
10
1.
45%
: 2007
1.
4
4
2.
3
3
3
3.
3
2011 2 53%
2010
70% 70%
70% :
2011 10
2012
12
12 100 / 17.72 /
5
120
1200
10%
130% 70%
30
20
30
12%
14 /
1.
12%
10%
2.
3.
14 /
17.72 /
26.6%
4.
:
Albert
Albert 2012