Hal Wipley is the owner of Samantha Company and has hired Jenna Walters to value his firm
Question:
Hal Wipley is the owner of Samantha Company and has hired Jenna Walters to value his firm as he is contemplating retirement. Walters made the following estimates:
High-Growth Stage | Stable-Growth Stage | |
Growth rate | 18.0% | 3.0% |
Length of growth period | 2 years | Indefinite |
Beta | 1.36 | 1.36 |
Walters expects the high-growth stage to phase into the stable-growth stage evenly over a two-year period, before reaching stable growth in Year 5. Dividends per share are currently CAD 6.40. The risk-free rate is 4.0% and the market risk premium is 5.0%.
REQUIRED:
What is the intrinsic value of Samantha’s common shares? Hint: Use the three-stage income approach model.
South-Western Federal Taxation 2020 Comprehensive
ISBN: 9780357109144
43rd Edition
Authors: David M. Maloney, William A. Raabe, James C. Young, Annette Nellen, William H. Hoffman