chemicals, and also manufactures fertilizers and food additives. Gupta has concluded that the DDM is appropriate to value Tata Chemicals. During the last five years (fiscal year ending 31 March 2004 to fiscal year ending 31 March 2008), the company has paid dividends per share of Rs. 5.50, 6.50, 7.00, 8.00, and 9.00, respectively. These dividends suggest an average annual growth rate in DPS of just above 13 percent. Gupta has decided to use a three-stage DDM with a linearly declining growth rate in Stage 2. He considers Tata Chemicals to be an average growth company, and estimates Stage 1 (the growth stage) to be 6 years and Stage 2 (the transition stage) to be 10 years. He estimates the growth rate to be 14 percent in Stage 1 and 10 percent in Stage 3. Gupta has estimated the required return on equity for Tata Chemicals to be 16 percent. Estimate the current value of the stock using the H-model. (Do not round intermediate computations. Round your final answer to two decimal places and do not include a currency symbol. For example, if your answer is Rs89.1245, enter 89.12)
chemicals, and also manufactures fertilizers and food additives. Gupta has concluded that the DDM is appropriate to value Tata Chemicals. During the last five years (fiscal year ending 31 March 2004 to fiscal year ending 31 March 2008), the company has paid dividends per share of Rs. 5.50, 6.50, 7.00, 8.00, and 9.00, respectively. These dividends suggest an average annual growth rate in DPS of just above 13 percent. Gupta has decided to use a three-stage DDM with a linearly declining growth rate in Stage 2. He considers Tata Chemicals to be an average growth company, and estimates Stage 1 (the growth stage) to be 6 years and Stage 2 (the transition stage) to be 10 years. He estimates the growth rate to be 14 percent in Stage 1 and 10 percent in Stage 3. Gupta has estimated the required return on equity for Tata Chemicals to be 16 percent. Estimate the current value of the stock using the H-model. (Do not round intermediate computations. Round your final answer to two decimal places and do not include a currency symbol. For example, if your answer is Rs89.1245, enter 89.12)
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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H4.
Transcribed Image Text:Mohan Gupta is the portfolio manager of an India-based equity fund. He is analyzing the value of Tata Chemicals Ltd. Tata Chemicals is India's leading manufacturer of inorganic
chemicals, and also manufactures fertilizers and food additives. Gupta has concluded that the DDM is appropriate to value Tata Chemicals.
During the last five years (fiscal year ending 31 March 2004 to fiscal year ending 31 March 2008), the company has paid dividends per share of Rs. 5.50, 6.50, 7.00, 8.00, and
9.00, respectively. These dividends suggest an average annual growth rate in DPS of just above 13 percent. Gupta has decided to use a three-stage DDM with a linearly declining
growth rate in Stage 2. He considers Tata Chemicals to be an average growth company, and estimates Stage 1 (the growth stage) to be 6 years and Stage 2 (the transition stage)
to be 10 years. He estimates the growth rate to be 14 percent in Stage 1 and 10 percent in Stage 3. Gupta has estimated the required return on equity for Tata Chemicals to be
16 percent.
Estimate the current value of the stock using the H-model.
(Do not round intermediate computations. Round your final answer to two decimal places and do not include a currency symbol. For example, if your answer is Rs89.1245, enter 89.12)
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