Granada plc is a multi-national pharmaceutical company. It plans to expand and produce a pioneering new class of drugs, messenger RNA therapeutics, which have the potential to treat many diseases. The quickest way to implement this plan is to acquire a company that already excels in this area of therapeutics. It is in discussions with Aurio Ltd, a relatively young unquoted company, that it has identified as a potential takeover target.

The following information has been obtained about Aurio Ltd.

Number of ordinary shares	1.5 million
Earnings per share	415p
Dividend per share one year ago	76p
Dividend per share two years ago	71p
Cost of equity	15%

Aurio Ltd is about to pay a dividend to its shareholders. It has a proposed payout ratio of 20%.

Required:

1. Calculate the value of Aurio Ltd using the dividend valuation model.

(6 marks)

2. Explain why the dividend valuation model is not the most appropriate method to use to value Aurio Ltd and suggest a more appropriate alternative valuation method.