Re: ::: vuaskari.com ::: fin22 GDB discussion

Growth Rate = 12%

Required Rate of Return = 10 %

 

DDM formula:

 

PV = D1/ (I – g)

 

PV = 0.70 / (- 0.02)

 

PV = -35 

 

For example per share dividend is 0.70. 

 

I – g = 0.10 - 0.12 = -0.02

plzzzzzzzzz is ma change kar lo aur haan  baki dono m aye likh do ke  required rate of return ziyada hona chahie growth rate say so plzzzzzzzzzzzz change your steps and submit it pray for me ... ye bilkul sahi solution ha  according to teacher solving 

On Thu, Nov 29, 2012 at 9:54 PM, Muhammad Farooq <farooqsarwarvu@gmail.com> wrote:

fin 622 sub ha par solution ni

On Thu, Nov 29, 2012 at 5:14 AM, Shazia Bhatti <shaziabhattivu@gmail.com> wrote:

kisi ka yeh subject hai

On Wed, Nov 28, 2012 at 9:37 AM, Shazia Bhatti <shaziabhattivu@gmail.com> wrote:

Big Gee Limited (BGL) has reported earnings per share of Rs.15 with 0.70:1 payout for the year 2011. Its dividends have been growing at a constant rate of 8% and are expected to continue at the same for foreseeable future.

Mr. Young - a fresh business graduate has recently joined BGL as business analyst. On one day during his training, he was assigned a task to forecast BGL's dividend growth rate and intrinsic value of the company's stock for the next year using the famous Dividend Discount Model (DDM).

Based on the data given to him, Mr. Young estimated a growth rate of 12%. For an ordinarily prudent investor in the similar industry, Young estimated a required rate of return at 10%. On this basis, he estimated the intrinsic value - an unreal price surely.

While presenting his work to the other training mates, he could not defend his estimates as he has to face strong arguments about the unreal price. Mr. Old - a senior finance manager argued that the estimated growth rate by Young had resulted in the negative share price that is not acceptable in any case in the real world.

Required:

1.      Compute the share value as done by Mr.Young;                                       (1.0 Mark)

2.      Comment on this value; &                                                                         (0.5 Mark)

3.      Support your comments with logical reason.                                             (0.5 Mark)

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