*PLEASE ONLY COMPLETE PART C AND D*

Question 1 (20 marks)

Answer the following questions in the context of constant growth dividend model.

Use the following information for parts A and B.

Mago Limited has $4.00 earnings per share this year. The companys return on equity and dividend payout ratio are 17% and 60%. Mago Limiteds stocks has a beta of 1.5. The rates of return of the market portfolio and the T-Bills are 12% and 2% respectively.

a. Calculate the intrinsic value per share of Mago Limiteds stocks. (5 marks)

b. Further to part A, if Mago Limiteds dividend payout ratio is 100% instead of 60%, the intrinsic value of the stock would be the same as the intrinsic value in part A.

Do you agree with the statement above? Explain your answer without any further calculation. (5 marks)

C. The required rate of return of Rose Limiteds stocks is 12%. Rose Limited expects to have a constant growth of 4% on its dividend forever. The P/E ratio of the companys stocks is 8. The rate of return of the T-Bills is 2%. Calculate the dividend payout ratio of Rose Limited. (4 marks)

D. Speedy Tech Limiteds stocks just paid a dividend of $3 per share today. The dividend is expected to grow at a rate of 26% p.a. for the next 3 years. After that the dividend growth rate will fall to a stable 4% p.a. forever. The required rate of return on the stock is 12%. Calculate the intrinsic value of the stock today. (6 marks)

Section II (80 marks) Answer ALL questions in this section. Show all your calculations. Round your answers up to 2 decimal places. Put ALL answers in the space provided below each question. Question 1 (20 marks) Answer the following questions in the context of constant growth dividend model. Use the following information for parts A and B. Mago Limited has $4.00 earnings per share this year. The company's return on equity and dividend payout ratio are 17% and 60%. Mago Limited's stocks has a beta of 1.5. The rates of return of the market portfolio and the T-Bills are 12% and 2% respectively. A. Calculate the intrinsic value per share of Mago Limited's stocks. (5 marks) B. Further to part A, if Mago Limited's dividend payout ratio is 100% instead of 60%, the intrinsic value of the stock would be the same as the intrinsic value in part A. Do you agree with the statement above? Explain your answer without any further calculation. (5 marks) Page 9 of 23 C. The required rate of return of Rose Limited's stocks is 12%. Rose Limited expects to have a constant growth of 4% on its dividend forever. The P/E ratio of the company's stocks is 8. The rate of return of the T-Bills is 2%. Calculate the dividend payout ratio of Rose Limited. (4 marks) D. Speedy Tech Limited's stocks just paid a dividend of $3 per share today. The dividend is expected to grow at a rate of 26% p.a. for the next 3 years. After that the dividend growth rate will fall to a stable 4% p.a. forever. The required rate of return on the stock is 12%. Calculate the intrinsic value of the stock today. (6 marks)