Question
Please answer this soon... urgent please i am desperate PKG Labs is a leading pathology provider and its shares are listed on the Australian Stock
Please answer this soon... urgent please i am desperate
PKG Labs is a leading pathology provider and its shares are listed on the Australian Stock Exchange. In the year just ended, PKG Labs net income was $15 million and the plowback ratio was 60%. To maintain its current growth, PKG Lab has decided to keep its plowback ratio constant for the next 4 years. PKG Labs net income is expected to grow at a rate of 8% for the next 4 years. After 4 years, PKG Lab will reduce its plowback ratio to a constant rate of 20% and the net income will grow at a sustainable rate of 3% thereafter. PKG Lab is currently traded at $15 per share and has a beta of 0.8. The number of shares outstanding is 10 million. The companys cost of unlevered cash flow is 8.5%, and the cost of equity based on the CAPM is 10%. The expected market risk premium is 11%.
a) What is the intrinsic value of the PKG Labs share price using the Dividend Discount Model? What is your investment advice based on the intrinsic value? (to two decimal places) (4 marks)
b) What is the present value of growth opportunity based on the intrinsic value calculated in part a)? (to two decimal places) (2 marks)
c) If you have changed your forecast on the market risk premium to 10%, what is the revised expected return of investing in PKG Lab for the next year based on CAPM? (to two decimal places) (1 mark)
d) What is the P/E ratio at the end of the fourth year from now (at the beginning of year 5)? (to two decimal places) Which stage of industry lifecycle will PKG be in after 4 yearsSupport your explanation with relevant numbers. (3 marks)
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