Eliza in the middle of analyzing of her portfolio of Brex stock and Columbus stock. Brex Bhd has issued 20 million shares of RM1 par value issued and outstanding. Current market price is RM8/share. The net income is 20% from its sales of RM250 million and the firm retain 70% of its income. Its total assets are RM300 million and its total liabilities is RM100 million.

The firm growth rate of dividend is 20% for the next 2 years and declined by 8% in another 2 years and declined to 5% in year 5 thereafter. The beta is 1.2, the risk-free rate is 3.5% and the expected market return on portfolio is 10.5%.

While Columbus stock has a constant growth rate of 8%, the required rate of return is 15%. The firm declared a dividend payment of RM15 million to its shareholders. Its price earnings ratio is 6.7 times and its earnings per share is RM5.45. Assume shares outstanding for Columbus also 20 million shares.

Besides the above stocks, she plans to invest in Cicu stock. The stock expected to pay a dividend of RM1.20, second year RM1.50, third year RM2.10 and the fourth year is RM2.45. The required rate of return is 12% and currently the market price is RM25.

Required:

1. Compute the value for all the above stocks.

(10 marks)

(CLO2:PLO6:C5)

2. Analyse all the above and either they are worth to invest. Assess your results from (a).

(6 marks)

(CLO2:PLO6:C5)

3. Why the firm issues shares and where the firm can issue the shares?