Question: Simon is an equity analyst. He is now analysing a vacuum cleaner company called Wesuck. The stock of Wesuck is currently selling for $50 per

Simon is an equity analyst. He is now analysing a vacuum cleaner company called Wesuck. The stock of Wesuck is currently selling for $50 per share. Wesuck has just paid a cash dividend of $1. Simon estimates that the dividend will grow at a rate of 7% in the coming 2 years, then stop growing thereafter. The dividends are paid once every year. The market required rate of return of Wesuck is flat at 4% for all tenors.

a)Calculate the current intrinsic value of Wesuck by Dividend Discount Model (DDM).

b)It is projected that the earning of Wesuck in next year will be $2. Using the intrinsic value from part (a), calculate the present value of growth opportunities (PVGO) of Wesuck.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Please solve the below question step wise... Equity analysis (13 marks) Simon is an equity analyst. He is now analysing a vacuum cleaner company called Wesuck. The stock of Wesuck is currently...

Simon is an equity analyst. He is now analyzing a vacuum cleaner company called Wesuck. The stock of Wesuck is currently selling for $50 per share. Wesuck has just paid a cash dividend of $1. Simon...

NEED ANSWER BEFORE 11:00 IF NOT LET ME KNOWTODAY OCTOBER FIRST, THEY ASK ME FOR MORE MONEY BUT DO NOT KNOW HOW TO ADD MORE Text 1 450 A business combination is accounted for properly as an...

The last exam will cover these 3 tests plus a few small quizzes. The attached should give you a good idea of the material. Let me know if you have any questions. You can see which I got correct with...

Why did Marvel have to file for bankruptcy? What is your assessment of Perelman's proposed restructuring plan - the one proposed in January 1997, not the one "floated" to analysts in November 1996....

Review case 4.1 Enron Corporation and Andersen, LLP . Complete the following Required questions related to this case, 1-5, in approximately 75 to 90 words. QUESTIONS TO BE ANSWERED: Review case 4.1...

1) The market for short-term debt is known as A) the money market. C) the notes market. B) the bond market. D) the capital market. 1) 2) A commercial bank will loan you $7,500 for two years to buy a...

there are 25 questions --- i feel totally lost please help1 1 Problem 10-14 Analyzing bond price changes [LO3] Katie Pairy Fruits Inc. has a $3,000, 22-year bond outstanding with a nominal yield of...

CLOSING Strategy Implementation at Dell Computer Dell Computer was one of the fastest-growing com- panies of the 1990s, and its stock price increased at the rate of 100% per year, delighting its...

The management of Natural Remedies has been considering whether or not to accept a one-off contract. The customer is offering a price of $10,500,000 for painting services. The painter has indicated...

Which regulatory body oversees mutual funds in the United States? Question 8 options: Canadian Securities Administrators ( CSA ) Undertakings for Collective Investment in Transferable Securities (...

The design of a new multinational personnel selection system at MobilCom. Louisa is a senior HR manager at MobilCom, currently residing and working in the Kuala Lumpur (KL) office. She had completed...

Kelly Company issues 12% bonds with a face value of $10,000 and 600 shares of $10 par common stock in a combined sale, receiving total proceeds of $23,000. Required Record the transaction for each...

Using the figure in question 11, perform resource-limited scheduling. Assume that you have only three workers available at any given time. What is the new completion date for the project?

The Barb Company has provided information on intangible assets as follows: 1. A patent was purchased from the Lou Company for $1,500,000 on January 1, 2006. Barb estimated the remaining useful life...

Complete both sections 1 and 2. 1. Depreciation Expense Valley Corporation purchased a new piece of equipment on June 1, 2015. The cost of this machine was $325,000. The company estimated that the...

Create a 200 word summary on the Juvenile Justice System than and today. Describe The Juvenile system and provide a generalizable definition. Highlight the issues in the Juvenile system and why this...

Which of the following is an example of Theory X in action? a. Self-led project teams b. Micromanagement c. Team members are able to work without much direction d. Earned Value Management

The PM is dealing with a large number of strong-willed people. However, most of the team members have worked with the PM before in this projectized environment, and there is a great deal of trust...

The PM is in a tough project situation, with a large number of deadlines and several milestones behind schedule. There is a huge push from the sponsor to quickly complete the project and the team is...