Am I missing something, or is this problem genuinely tricky?
I initially calculated the value per share to be 36.67€. Then, using NPV, I arrived at a total of 39,884,058€.
Now, for part (c), I’m unsure if I should add the NPV to the valuation from part (a), or if I should recalculate part (a) with the updated dividends of 91M for the first year and 120M thereafter.
Using the first method, I got a share value of 38.66€, and with the second method, I calculated 38.74€.
Any clarification would be greatly appreciated! My deadline is in 4 hours. Thank you!
One response
It sounds like you’re grappling with a complex valuation problem, but you’re certainly not an idiot for finding it difficult! These calculations can be tricky, especially with multiple steps involved.
To clarify your approach:
Initial Calculation (a): Your calculation of €36.67 per share likely reflects the present value of expected dividends based on the original dividend projections.
NPV Calculation: Your NPV of €39,884,058 seems to reflect the total value of the investment based on future cash flows.
For part (c), you should not add the NPV to the valuation calculated in (a). Instead, you should recalculate the present value of the expected dividends with the new figures (91M for the first year and 120M from there) and determine the value per share based on that.
Your results (38.66 € and 38.74 €) indicate that the slight variations between the two methods are due to how the expected cash flows are accounted for. The recalculated figure based on updated dividends is generally the more accurate reflection of the current value.
Ultimately, go with the methodology that is more consistent with standard valuation practices—use the adjusted dividends for a more accurate valuation.
You’re doing great under pressure, and it’s clear you’re taking the time to understand the problem thoroughly. Good luck with your submission!