Essay About 20140.3236Dividend Payout Ratio And 2014175,406Net Income 201556,766Roe

Management Competency
Part A.Net asset in 2015287,387Net asset in 2014175,406Net income 201556,766ROE(2015)=Net income 2015 / Net asset in 20140.3236Dividend payout ratio = Dividend 2015 / Net income 20150.603ROE after dividend= ROE (2015)* (1- Dividend payout ratio)0.1285a) From the Select Harvest Ltd 2015 Annual Report[1]Step1: Net income for 2015, NI2015=56,766Book value at 2014.6.30, bv2014=175,406Book value at 2015.6.30, bv2015= 287,387ROE2015=NI/E2015= 56,766/175,406= 0.3236(Note: the unit of net income and book value is $1,000)Step2:Assume Select Harvest has persistence earnings for seven years, ROE and dividend payout ratio will continue for seven years.Dividend payout ratio, k, for 2015= Dividend per share/ Earnings per share= 50/82.9 = 0.603ROE after dividend=0.32362633*(1-0.603) = 0.1285Step3:Assume cost of equity will stay constant CAPM= Rf+ βj(E(Mt)-Rf)＝2.85%+1.29*4.8%= 9.04%β=1.29[2]Rf=2.85 % [3](E(Mt)-Rf)=4.8%Step4:Expected BV based on the firm generating ROE of Select Harvest Ltd for 7 yearsbv2015=287,387bv2016= 287,387*(1+0.1285) = 324,310bv2017= 324,310*(1+0.1285) = 365,978bv2018= 365,978*(1+0.1285) = 412,998bv2019= 412,998*(1+0.1285) = 466,060bv2020= 466,060*(1+0.1285) = 525,939bv2021= 525,939*(1+0.1285) = 593,512(Note: the unit of book value is $1,000)Step5:abnormal earning2016= (0.3236-0.0904) * 287,387= 67,020abnormal earning2017= (0.3236-0.0904) * 324,310= 75,631abnormal earning2018= (0.3236-0.0904) * 365,978= 85,348abnormal earning2019= (0.3236-0.0904) * 412,998= 96,314abnormal earning2020= (0.3236-0.0904) * 466,060= 108,688