Question $3(18$ marks$)$

Consider the following information for Firm X currently. Sales revenue is $$50,000,000.$ Net profit margin is $8\%.$ There is no preferred stock. There are $2,000,000$ outstanding shares of common stock. Each lot of shares consist of $2,000$ shares. Dividend payout ratio is constant at $30\%$ each year. It is known that the risk premium for the share of Firm $x$ is $8\%,$ and the risk$-$ free rate is $2\%.$

a$)$ Calculate the total dividend amount for Firm $x$ currently, and hence its dividend per share.

$(4$ marks$)$

b$)$ Calculate the earnings per share $($EPS$)$ for the stock.

$(2$ marks$)$

c$)$ Calculate the required return rate for the stock.

$(2$ marks$)$

d$)$ Assume the dividend $($in part $($a$))$ is just paid. If the sustainable growth rate of dividend is $4\%,$ calculate the intrinsic value $($i$.$e$.,$ expected price$)$ of a share for the stock. $(5$ marks$)$

e$)$ Assume the current $\frac{P}{E}$ ratio is $4,$ and your expected price of the stock is the answer in part $($d$).$ Suppose you consider either buying or selling some shares of Firm X$.$ Justify your investment decision $($buying or selling$)$ with calculation.

$(5$ marks$)$