Assuming a 13.9% discount rate, estimate the value of Union Chemical Bhd. (ii) Determine whether Union Chemical Bhd is undervalued or overvalued. (iii) “The constant-growth model should not be used with just any stock.”
Assuming a 13.9% discount rate, estimate the value of Union Chemical Bhd. (ii) Determine whether Union Chemical Bhd is undervalued or overvalued. (iii) “The constant-growth model should not be used with just any stock.”
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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(i) Assuming a 13.9% discount rate, estimate the value of Union Chemical Bhd.
(ii) Determine whether Union Chemical Bhd is undervalued or overvalued.
(iii) “The constant-growth model should not be used with just any stock.”
Explain with reasons the assumptions used by analysts when using the constant-
growth dividend model.
Transcribed Image Text:Question 3
(a)
Ann Lee is the portfolio manager of a Singapore based cquity fund. She is analysing the value
of Union Chemical Bhd which manufactures fertilizers and food additives. The company's
dividend per share for the fiscal year ended 30 June 2021 was RM0.20 and its current share
price is RM8.50 each. Analysts have forecasted a 30% growth rate for the next 5 years and
thereafter 9.4% per year forever.
Required:
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