National Gaming Inc. (National) operates the weekly lottery in the country. National is owned by the country's Finance Ministry. Hence, the operating license is indefinite, and National enjoys tax-free status. The annual net profit of $300 million has been stable for many years, and is expected to remain so. The required return for operations like National's is 10 percent.

National's directors are considering increasing the company's counter sales by raising the gaming payouts. This is expected to take place in 3 years' time. Thereafter, it is estimated that the annual net profit will grow by 5 percent per annum starting in 4 years' time. There is also the risk that net profits may shrink if counter sales do not rise. Hence, analysts pile a risk premium of 2 percentage points on the company.

Required:

Part 1: Discuss the appropriate method to estimate the current value of National without the change in gaming payouts. Calculate the value.

Part 2: Discuss the appropriate method to estimate the value of National with the change in gaming payouts. Calculate the value.

Part 3: Assume the government privatizes National through the tender sale of 1 billion shares of the company. The change in gaming payout is announced.

Use Part 2's answer to derive the highest bid price per share for the stock of National.

Use Genting Singapore Limited's forward price earnings ratio as proxy to derive the highest bid price per share for the stock of National.