a) You expect Flight Centre Ltd. to maintain the same dividend payout ratio as at 30th June 2017 for the next three years. After three years, the company will increase the dividend payout ratio to 70%. Assume companys return on new investment is 16.6% and the required rate of return is 10%. Using the dividend discount model, calculate the intrinsic value for stock today.

b) Based on your answer in Part(a), would you recommend to buy, sell or hold the stock? Give the recommendation and briefly discuss the difference between the intrinsic value and stock price. (no more than 200 words)

All financial statement numbers are in millions of dollars unless otherwise indicated

Assume today is 30th June 2017 and you have just been paid a dividend and that the next dividend will be received in exactly one year (assume dividend is paid annually).

The stock price as at 30th June 2017 was $38.30.

Using this spreadsheet:

F G FY 2013 06/30/2013 1.37 A C D E 1 2 Flight Centre Travel Group Ltd (FLT AU) - Dividend Summary 3 4 In Millions of AUD except Per Share FY 2010 FY 2011 FY 2012 5 12 Months Ending 06/30/2010 06/30/2011 06/30/2012 6 Dividends per Share 0.7 0.84 1.12 7 Dividends per Share - 5 Yr Geo Growth 8 Dividend Yield 1.5634 3.7003 4.7015 9 Dividend Payout Ratio 49.9374 60.0536 56.008 10 Cash Dividend Coverage 2.0025 1.6652 1.7855 11 Dividends Paid -25.9 -79.9 -89.0 12 Total Cash Preferred Dividends 0.0 0.0 0.0 13 Total Cash Common Dividends 69.8 84.0 112.1 14 Trailing 12M Preferred Dividends 0.0 0.0 0.0 15 Trailing 12M Common Dividends 69.8 84.0 112.1 16 Trailing 12M Dividends Per Share 0.7 0.84 1.12 2.9748 55.9101 1.7886 -117.3 0.0 137.6 0.0 137.6 1.37 FY 2014 06/30/2014 1.52 76.0031 3.2846 73.879 1.3536 -146.8 0.0 152.9 0.0 152.9 1.52 FY 2015 06/30/2015 1.52 16.7748 4.4562 59.7343 1.6741 -153.1 0.0 153.3 0.0 153.3 1.52 FY 2016 06/30/2016 1.52 12.5934 4.9715 62.7218 1.5943 -158.4 0.01 153.4 0.0 153.4 1.52 FY 2017 06/30/2017 1.39 4.4141 3.577 60.8399 1.6437 -138.3 0.0 140.4 0.0 140.4 1.39