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INV2601 Asssignment 1 2022 Second Semester
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Contains solutions for INV2601 assignment 1 for the second semester of 2022. Calculations have been included to aid revision.
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INV2601 ASSIGNMENT 1 2022SEMESTER 2
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Calculations
Kagiso’s estimate: Using the variable model
D0 = 2
D1 = 2(1+0.30) = 2.6
D2 = 2.60(1+0.30) = 3.38
D3 = 3.38(1+ 0.20) = 4.056
D4 = 4.056(1+0.04) = 4.21824
D4 4.21824
Terminal value after year 3 (T3) = (Ke−g) = (0.10−0.04) = 70.304
, Intrinsic value:
CF0 = 0
CF1 = 2.6
CF2 = 3.38
CF3 = 4.056 + 70.304
Cfi = 10%
Comp NPV = 61.02 correct to 2dp
Mbali’s estimate: Using the constant model
Expected dividends
Intrinsic value = Required return−growth rate
Expected dividends = 2(1+0.04) = 2.08
Required return = 10%
Growth rate = 4%
2.08
Therefore, Intrinsic value = (0.10−0.04) = 34.67 correct to 2dp
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