Strategic Corporate Finance( ) - Case Study Example

The company prices have experienced a steep fall in prices. The assets might be highly overvalued in the markets. However, to give some relief, the shareholders equity is twice that of the number of shares that have been floated in the market. The fall in profits has also contributed to a fall in the NAV per share figures. The WACC is a reflection of company’s cost of taking funds from equity and debt sources. Each source of finance has been provided with the respective weights and in the present situation; the equity weighs more than the debts in the WACC formula.

This means that the company is operating with high levels of equity finance and can undertake expansionary opportunities based on the scope for developing debt finance. The WACC represents the investor’s risk of taking in the particular investment. The company’s WACC is 3.63% and it very low representing opportunities for investors to invest into the company. The average price earnings ratio of the retail industry is prevailing at 15 while for Morrison’s, the P/E ratios remains around 2.

This implies that the company is operating at very low profit scales. The industry is performing greater and Morrison’s profits earnings are far below industry average. However, this is relative to the number of shares floated by the company. In relation to the equity base, the company is operating with very low profit margins and needs to scale up its revenues in order to remain competitive within the industry. The value of Morrison’s share derived by way of the dividend growth model can be estimated by dividing the dividend declared for next year by the cost of equity.

In this case, the share price stands at This price is much lower than the prevailing market price of Morrison’s share in the markets. The present market price for company’s share is operating at GBP 196 per stock. The company has seen a huge fall in share prices from GBP 357 to GBP 196 in the 52 week scenario. The