Tester Ltd is a fast-growing, dividend-paying corporation. It has just paid a dividend of $1.00 per...

 

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Tester Ltd is a fast-growing, dividend-paying corporation. It has just paid a dividend of $1.00 per share. An investment analyst expects its dividend to grow rapidly at 30% for the next five years, and then at a 5% growth rate for the future years. a If the required rate of return is 10%, using a Two-Stage Dividend Growth Model, what is the value of this stock? (10 marks) b If the stock's reported earnings per share (EPS) is $2.00, and the analyst uses a 30x price earnings ratio (P/E) to value the stock, what is the value of this stock? What is the target stock price in one year if its dividend payout ratio remains the same? (10 marks) c Give two possible reasons for the difference in value of the stock deriving from (a) and (b) above. (5 marks) Tester Ltd is a fast-growing, dividend-paying corporation. It has just paid a dividend of $1.00 per share. An investment analyst expects its dividend to grow rapidly at 30% for the next five years, and then at a 5% growth rate for the future years. a If the required rate of return is 10%, using a Two-Stage Dividend Growth Model, what is the value of this stock? (10 marks) b If the stock's reported earnings per share (EPS) is $2.00, and the analyst uses a 30x price earnings ratio (P/E) to value the stock, what is the value of this stock? What is the target stock price in one year if its dividend payout ratio remains the same? (10 marks) c Give two possible reasons for the difference in value of the stock deriving from (a) and (b) above. (5 marks)

Answer rating: 100% (QA)

Based on the question provided we have several parts to address in order to find out the value of the stock for Tester Ltd under different assumptions Part A Were asked to calculate the value of the s... View the full answer