Question 2 Equify Valuation (10 marks) A New Zealand-based company is involved in the development of a new device. The company has a ROE of 25% and maintains a plowback ratio of 0.40. Its forecasted earnings one year from (a) Calculate the price at which this company's stock should sell according to the constant growth dividend discount model (DDM). (2 marks) Click and type your answer. (b) Calculate the present value of growth opportunities (PVGO) for the company stock. Explain the meaning of this value. (2 marks) Click and type your answer. (c) If the company planned to reinvest only 20% of its earnings, explain whether and why reducing the reinvestment rate is a good decision for the company. (2. marks) Click and type your answer. (c) If the company planned to reinvest only 20% of its earnings, explain whether and why reducing the reinvestment rate is a good decision for the company. (2 marks) Click and type your answer. Page 3 of 6 FNA602 52022 Student ID Number: Student Name: (d) What is the P/E ratio for the company stock? (1 mark) Click and type your answer. Suppose that new information from the company leads to revising the estimates regarding the company's prospect in such a way that the company's dividend will be $0.20 per share fot the first year from now and $0.30 per share for the second and third year from now. After three years, the company's dividend will grow at a constant rate of 5% per annum permanently. (e) What is the price at which this company's stock should sell based on the revised estimates according to two-stage DDM? (3 marks) Click and type your answer. Question 2 Equify Valuation (10 marks) A New Zealand-based company is involved in the development of a new device. The company has a ROE of 25% and maintains a plowback ratio of 0.40. Its forecasted earnings one year from (a) Calculate the price at which this company's stock should sell according to the constant growth dividend discount model (DDM). (2 marks) Click and type your answer. (b) Calculate the present value of growth opportunities (PVGO) for the company stock. Explain the meaning of this value. (2 marks) Click and type your answer. (c) If the company planned to reinvest only 20% of its earnings, explain whether and why reducing the reinvestment rate is a good decision for the company. (2. marks) Click and type your answer. (c) If the company planned to reinvest only 20% of its earnings, explain whether and why reducing the reinvestment rate is a good decision for the company. (2 marks) Click and type your answer. Page 3 of 6 FNA602 52022 Student ID Number: Student Name: (d) What is the P/E ratio for the company stock? (1 mark) Click and type your answer. Suppose that new information from the company leads to revising the estimates regarding the company's prospect in such a way that the company's dividend will be $0.20 per share fot the first year from now and $0.30 per share for the second and third year from now. After three years, the company's dividend will grow at a constant rate of 5% per annum permanently. (e) What is the price at which this company's stock should sell based on the revised estimates according to two-stage DDM? (3 marks) Click and type your
