Mercury Jun 08

Good morning sir!

for part (b), i wanted to make a sensible remark as to why we cant use the P/E method to value Mercury. or can we?

if we take jupiter, its p/e is 580/50=11.6.

given that 1/3 of mercury’s revenues are from financial services, 11.6 wd represent 2/3 p/e.
so if add 1/3 x 11.6, we get

11.6+ (1/3)x11.6 = 15.46

this means M’s mkt value = 15.46 x 100=1546=$15.46/share

i wd have written that we can look up PE ratios of the financial sector and added that as a weighed average to make the estimates more accurate.

what i did above makes sense?

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use of free cash flows:

is it possible to use the EPS of mercury as fcfe?

i mean fcfe=100-dividend=100-25=75

then from here, we cd make certain assumptions:

1. that the weighted growth rate of 5.33% can be taken as a perpetuity…then get a value?
2. make an assumption that this rate will continue for 5 years …..then become static…and then get a value?

regards