You are working as an Analyst for a Fund Management Company. The Portfolio Manager has done...

 

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You are working as an Analyst for a Fund Management Company. The Portfolio Manager has done a valuation of several Singapore stocks in his portfolio using the Price Earnings Ratio method. The Earnings per Share and appropriate PEs of Stock A and Stock B are as follows. Earnings per share in 2024 PE ratio based on industry average Valuation based on PE method Stock A Stock B 1.20 2.80 10 12 12.00 33.60 The Portfolio Manager now wants to cross-check his stock valuation against an alternative method and has asked you to value the two stocks using the Dividend Valuation Model. He advised that the cost of equity for Stock A is 8% and that of Stock B is 10 % based on the Capital Asset Pricing Model. The historical dividends for the period from 2020 to 2023 are given below. (a) (b) (c) (d) Stock A Stock B Dividend for 2020 (Historical) 0.17 1.44 Dividend for 2021 (Historical) 0.18 1.57 Dividend for 2022 (Historical) 0.21 1.68 Dividend for 2023 (Historical) 0.22 1.81. Discuss whether it is more appropriate to use the single-stage or two-stage model for the two companies. Determine the value of Stock A and B if you were to use the two-stage Dividend Valuation Model. Justify your choice of the terminal growth rate for both stocks. Analyse whether it is more appropriate to use the Dividend Valuation Model for Stock A or Stock B. You are working as an Analyst for a Fund Management Company. The Portfolio Manager has done a valuation of several Singapore stocks in his portfolio using the Price Earnings Ratio method. The Earnings per Share and appropriate PEs of Stock A and Stock B are as follows. Earnings per share in 2024 PE ratio based on industry average Valuation based on PE method Stock A Stock B 1.20 2.80 10 12 12.00 33.60 The Portfolio Manager now wants to cross-check his stock valuation against an alternative method and has asked you to value the two stocks using the Dividend Valuation Model. He advised that the cost of equity for Stock A is 8% and that of Stock B is 10 % based on the Capital Asset Pricing Model. The historical dividends for the period from 2020 to 2023 are given below. (a) (b) (c) (d) Stock A Stock B Dividend for 2020 (Historical) 0.17 1.44 Dividend for 2021 (Historical) 0.18 1.57 Dividend for 2022 (Historical) 0.21 1.68 Dividend for 2023 (Historical) 0.22 1.81. Discuss whether it is more appropriate to use the single-stage or two-stage model for the two companies. Determine the value of Stock A and B if you were to use the two-stage Dividend Valuation Model. Justify your choice of the terminal growth rate for both stocks. Analyse whether it is more appropriate to use the Dividend Valuation Model for Stock A or Stock B.