Divesh

PGP/24/387

FMI Assignment-11
Concept Question

Q7. Yes, the dividend and price of the stock grow at the same rate in the dividend growth model

Exercise Question

Q7. Div= 9

Time= 13 yrs

Rate=9.5%

PV of annuity = using excel, we get $65.6

Q17. Div = $13, r= 10%, g=-4%

P = Div (1-g) / (r-g)

= 13 (1-0.4) / (0.1+0.4)

= $89.1

Q27. Sales = 42000000

Cost = 13000000

Cash= 21000000

Debt = 64000000

No. of Shares = 1750000

EV/EBITDA multiple = 6.8

EBITDA = 42000000 – 13000000

= 29000000

Enterprise Value = 29000000 * 6.8

= 197200000

Equity Value = EV + Cash – Debt

= 197200000 + 21000000 – 64000000

= 154200000

Price /share = 154200000 / 1750000

= 88.1

Q31. D0 = 3.4

D1 = 3.4 * 1.2 = 4.08

D2 = 4.08 * 1.15 = 4.69

 Divesh
PGP/24/387

D3= 4.69*1.1 = 5.16

PV = 4.08 / (1.13) + 4.69 / (1.13)^2 + 5.16/ (1.13)^3

= 10.85

PV of subsequent cashflows at year 3 = 5.16 * 1.05 / (0.13 – 0.05)

= 67.74

PV at year 0 = 67.74 / (1.13)^3

= 46.94

Total Value = 46.94 + 10.85

= 57.79