An investor has estimated that next year's sales for Pagoda Hotel will be RM100 million. Pagoda Hotel has 5 million shares outstanding. It generates a net profit margin of about 10%, and has a dividend pay-out ratio of 50%. Interest expense is RM10 million, taxes RM10 million, depreciation RM15 million, and amortisation about RM5 million. All amounts are expected to remain the same next year. Required: (f) The expected price of the stock two years from now, if you the stock is trading at about 8 times its projected cash flow per share. Determine whether the stock is undervalued or overvalued (assume that the market price of the share two years from now is RM50 per share).
An investor has estimated that next year's sales for Pagoda Hotel will be RM100 million. Pagoda Hotel has 5 million shares outstanding. It generates a net profit margin of about 10%, and has a dividend pay-out ratio of 50%. Interest expense is RM10 million, taxes RM10 million, depreciation RM15 million, and amortisation about RM5 million. All amounts are expected to remain the same next year. Required: (f) The expected price of the stock two years from now, if you the stock is trading at about 8 times its projected cash flow per share. Determine whether the stock is undervalued or overvalued (assume that the market price of the share two years from now is RM50 per share).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:An investor has estimated that next year's sales for Pagoda Hotel will be RM100 million. Pagoda
Hotel has 5 million shares outstanding. It generates a net profit margin of about 10%, and has a
dividend pay-out ratio of 50%. Interest expense is RM10 million, taxes RM10 million, depreciation
RM15 million, and amortisation about RM5 million. All amounts are expected to remain the same
next year.
Required:
(f) The expected price of the stock two years from now, if you the stock is trading at about 8
times its projected cash flow per share. Determine whether the stock is undervalued or
overvalued (assume that the market price of the share two years from now is RM50 per
share).
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