Question
Hal Wipley is the owner of Samantha Company and has hired Jenna Walters to value his firm as he is contemplating retirement. Walters made the
Hal Wipley is the owner of Samantha Company and has hired Jenna Walters to value his firm as he is contemplating retirement. Walters made the following estimates:
High-Growth Stage | Stable-Growth Stage | |
Growth rate | 18.0% | 3.0% |
Length of growth period | 2 years | Indefinite |
Beta | 1.36 | 1.36 |
Walters expects the high-growth stage to phase into the stable-growth stage evenly over a two-year period, before reaching stable growth in Year 5. Dividends per share are currently CAD 6.40. The risk-free rate is 4.0% and the market risk premium is 5.0%.
REQUIRED:
What is the intrinsic value of Samantha’s common shares? Hint: Use the three-stage income approach model.
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South-Western Federal Taxation 2020 Comprehensive
Authors: David M. Maloney, William A. Raabe, James C. Young, Annette Nellen, William H. Hoffman
43rd Edition
357109147, 978-0357109144
