An opportunity had arisen now, where on Omair was now considering whether they should invest in a cattle farm to control the quality of meat, as well as to ensure optimization in supply chain. After quite a lot of debate and analysis Omair has now shortlisted to Akbar Cattle Farms as a potential target.

Akbar Cattle Farms (ACF) was started by two friends, Akhtar and Sabir a decade ago. Both of them had become friends while doing their undergrad studies in animal sciences, and decided to revolutionize farming in Pakistan by using their new found knowledge, and modern methods. They had developed a patented feed and cattle farming layout for optimal growth and quality of animals. Both Akhtar and Sabir own 100,000 shares of ACF.

Omair has asked Ali to analyze the value per share of ACF stock. To accomplish this, Ali has gathered the following information about some of ACFs competitors that are publicly traded:

	EPS	DPS	Stock Price	ROE	R (WACC)
Meat Farms	1.09	0.2	16	10%	12%
Lahore Cattle	1.26	0.55	14.5	11%	17%
Nautil Cows	-0.48	0.74	26.2	N/A	16%
Industry Average	0.62	0.50	18.9	10.5%	15.0%

Nautil Cows negative earnings per share (EPS) were the result of an accounting write-off last year. Without the write-off, EPS for the company would have been 2.07. Last year,

For ACF, they had an EPS of 5.00 and paid a dividend to Akhtar and Sabir of 290000each. The company also had a return on equity of 20 percent. Omair tells Ali that a required return for ACF of 20.5 percent is appropriate.

1. Assuming the company continues its current growth rate, what is the value per share of the companys stock (ACF)? (3 marks)

2. Ali has examined the companys financial statements, as well as examining those of its competitors. Although ACF currently has a patent advantage, but competitors will soon catch-up with innovation. So the advantage would last for five year. After that ACF growth would be same as industry.

Also, the required return of 20.5% ACF uses is too high. He believes the industry average required return is more appropriate. Under these assumptions, what is the estimated stock price? (5 marks)

3. What is the industry average priceearnings ratio? What is ACFs priceearnings ratio? (5 marks)

4. Assume the companys growth rate declines to the industry average after five years. What percentage of the stocks value is attributable to growth opportunities? (6 marks)

5. Assume the companys growth rate slows to the industry average in five years. What future return on equity does this imply? (6 marks)