Question 7

13 Marks

Goble has been going through a difficult financial period. Over the past three years, its stock price has dropped from R50 to R18 per share. Throughout this downturn, Goble has managed to pay a R1 dividend each year. Management feels the worst is over but intends to maintain the R1 dividend for three more years, after which they plan to increase it by 6% per year indefinitely. Comparable stocks are returning 11%.

7.1. If these projections are accurate, is Goble stock a good buy at R18? [10]

7.2. How do you think the market feels about Goble's management? [3