Njabini Chips Company., is the maker of gourmet German-style potato chips. The company began business three years ago in North Coast and grew quickly as the product became known. Njabini is now poised for national growth. Some analysts call the firm the next Kenchic . The company pays a dividend of Sh.1.00 per share. Earnings per share are currently Sh.5.00 and analysts expect both earnings and dividends to grow at 20 percent per year for the next 5 years. The stock price is expected to increase in value by 70 percent over the next 3 years. Required; If you believe that investors require a 20 percent rate of return on a stock of this risk, what price would you recommend as the IPO price for Njabini?
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Njabini Chips Company., is the maker of gourmet German-style potato chips. The
company began business three years ago in North Coast and grew quickly as the product
became known. Njabini is now poised for national growth. Some analysts call the firm the
next Kenchic . The company pays a dividend of Sh.1.00 per share. Earnings per share are
currently Sh.5.00 and analysts expect both earnings and dividends to grow at 20 percent per
year for the next 5 years. The stock price is expected to increase in value by 70 percent over
the next 3 years.
Required;
If you believe that investors require a 20 percent
price would you recommend as the IPO price for Njabini?
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