(Use only the information contained in the assignment for Task 1)

Calculate the Net asset value per share for Royal Mail Plc.

1. Calculate the cost of equity capital for Royal Mail using the Capital Asset Pricing Model.
2. Calculate the cost of debt capital (assume a taxation rate of 20%).
3. Calculate the weighted average cost of capital (WACC).

(use the share price as at 29^th of March 2015 for the value of equity)

Use the dividend growth model to calculate the theoretical price of a share under the following assumptions:

(i)            g = 0%

(ii)          g = 2%

Calculate the price earnings ratio using the share prices as at 30^th of March 2014 (30.6p) and 29^th of March 2015 (42.8p) and the EPS figure for 2013.

Comment on your answers if the energy sector containing ROYAL MAIL PLC has an average p/e ratio of 32.8(https://biz.yahoo.com/ic/773.html,  accessed 8 April 2016).

Part B (50 marks, you may use any information for this section)

Comment on the value of a Royal Mail share and advise your client

a)    Use the information from your calculations above and any information other you deem appropriate to arrive at the valuation of a Royal Mail share.

In doing so critically evaluate the Price-Earnings and Dividend Growth models used in your calculations and relate your calculations to the current and historic share price information as appropriate.

b)    Discuss whether you would advise your client to purchase shares in Royal Mail on the 5^th May 2015.