Question 4 (13 marks)

Wallace, a fund manager, is evaluating common stock value of Upbox Company, a video conference platform provider. He decides to use Constant Perpetual Growth Model for the evaluation and obtains the following information related to Upbox Company and market:

Upbox Company	Market
Latest dividend per share paid: $1.5 Earnings per share: $2.0 Book value per share: $12.5 Asset beta: 1.2 Debt-to-equity ratio: 60% Tax rate: 25% Existing share price of common stock: $20	Risk-free rate: 2% Market risk premium: 8%

(a) Compute the following figures:

1. (i) Sustainable growth rate.

2. (ii) Appropriate discount rate.

3. (iii) Justified value per share.

(b) Determine and explain briefly whether Wallace should buy common stock of Upbox Company. (2 marks)

(c) Identify THREE weaknesses for using constant perpetual growth model to evaluate stock price.