QUESTION 2 (22 MARKS)

Nani in the middle of analyzing of her portfolio of Zumba stock and Vintage stock. Zumba Bhd has issued 20 million shares at current market price of 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 on portfolio is 10.5%.

While Vintage stock has a constant growth rate of 8%, the required rate of return is 15%. The firm declared a dividend payment of RM20 million to its shareholders. Its price earnings ratio is 6.7 times and its earnings per share is RM5.45. Its net income is RM20 million.

Required:

1. Compute return on equity (ROE) of Zumba.

(2 marks)

2. Compute Earnings per share (EPS) of Zumba.

(2 marks)

3. Compute market price of Vintage.

(2 marks)

4. Compute the dividend per share for Zumba and Vintage.

(4 marks)

5. Compute the intrinsic value for both stocks. [Hint: Use DPS as in (d) as D0]

(8 marks)

6. Analyse either both stocks are worth to invest. Assess your results from (e).

(4 marks)