XYZ tech is based in European Union.  Share price of XYZ is traded at 40 euro per share.  Company is paying dividends once a year.  Expected dividend next year is about 2 euro per share. Return on equity is equal to 0.14.

Question 1.1:

Using Gordon model find implied growth rate of the company XYZ.
Question 1.2:

You are worrying that company might be overvalued.  Forward P/E ratio in tech sector is about 20. Analysts (whom you trust) expect that earnings per share will be 3 euro per share. Use relative (multiples) valuation method to estimate "fair" share price. Compare your estimate to the actual share price and make a conclusion whether company is overvalued or no?

Answer rating: 100% (QA)

11 To find the implied growth rate of the company XYZ using the Gordon model we can use the formula ... View the full answer