1. The stock WOW pays semi-annual dividends and has a beta of 1.35. The risk-free rate is 2.5% p.a. and the expected return of the market is 12%. WOW recently paid a dividend of $0.75. An analyst has advised that dividends will grow indefinitely at 8% p.a. (i.e. 4% per half year). What is the intrinsic value of WOW? Hint: You will need to work on a semi-annual basis for both dividend growth and the capitalization rate. 2. The beta of Cochlear (COH.AX) is 0.73. According to the RBA website the 10-year zero coupon yield is 3.93% p.a. which we will use as the risk-free rate. (a). Assuming the market risk premium is 8% calculate the capitalisation rate for COH. (b). This is the information available on COH.AX from yahoo-finance. Cochlear Limited (COH.AX)-ASX Close: 59.16 Open: 59.00 Bid: 59.02 Ask: 59.49 1y Target Est: 56.37 P/E: 25.46 EPS: 2.32 COH pays dividends semi-annually and the last dividend paid was $0.381. An analyst has determined that the dividend growth rate is negative; and has calculated it as -20% p.a. (-10% per half year). Determine the intrinsic value of COH and compare it to the closing price.

(c). Assume the closing price is the intrinsic value. Calculate the implied growth rate.

(d). Using the earning per share (EPS) data in (b) determine the present value of growth opportunities for COH.