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Case 1
e) D0 = 0.286
D1=0.286 (1.32) = 0.377
D2 =0.377 (1.32) = 0.498
D3 =0.498 (1.13) =0.56
P0 = 0.377/1.14 + 0.498/1.142 + [ 0.56/(0.14-0.13)]/1.142
= 43.98
Case 2
Case 3
iii) V firm = [260(1.05)] / 1.08 + [260(1.05)2} / 1.082 + 9937.50 / 1.082 = 252.78 + 245.76 +
8519..80 = 9018.34 million
Vequity = V firm – V debt = 9018.34 – 2400 = 6618.34
Fair price per share = 6618.34 / 80 = $82.73
Case 4
a) (i) 2-stage DDM:
Case 5
Based on the facts given, students may value the shares based on investors’ willingness to
pay for both future operating performance as well as investing performance, by using
following model:
P0 = EPS/k + PVGO
From DPS=$0.15 and RR=0.7, we can calculate the EPS = 0.15/(1-0.7) = 0.15/0.3=0.50
P0 = (0.5/0.12)/0.20 = $20.83