Question: Question 03 Phobis Co is considering a bid for Danoca Co. Both companies are stock market listed and are in the same business sector. Financial

Question 03

Phobis Co is considering a bid for Danoca Co. Both companies are stock market listed and are in the same business sector. Financial information on Danoca Co, which is shortly to pay its annual dividend, is as follows:

Number of ordinary shares = 5 million

Ordinary share price (ex div basis) = $3.30

Earnings per share = 40.0c

Proposed payout ratio = 60%

Dividend per share one year ago = 23.3c

Dividend per share two years ago = 22.0c

Equity beta = 1.4

Other relevant financial information

Average sector price/earnings ratio = 10

Riskfree rate of return = 4.6%

Return on the market = 10.6%

Required:

Calculate the value of Danoca Co using the following methods: (i) price/earnings ratio method

(ii) dividend growth model

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