Sarika completed her degree at the University of Toronto last summer. She works now at the Canada Pension Plan Investment Board. Her job requires her to manage a diversified portfolio of securities. Sarika wants you to analyze two stocks for her personal portfolio. Here is the information you have: Oddia Corp. is a young company. No dividends will be paid on the stock over the next seven years because the firm needs to plow back its earnings to fuel growth. The company will pay a $10 per- share dividend in eight years and will increase the dividend by 6% per year thereafter. Kesido Corp. just paid a $3.25 dividend per share. Dividends are expected to grow at a 19% rate for the next four years, with the growth rate falling off to a constant 5% per year thereafter. Shareholders require a 13.5% return for Oddia Corp. and a 12.5% return for Kesido Corp. Your friend Sarika knows that you are almost done with the "Introduction to Finance course this term. To test your knowledge, she asks you a few questions that will help her to corroborate her analyses. a. What is the stock price of Oddia Corp.? Please show your calculations. b. What is the stock price of Kesido Corp.? Please show your calculations. Based on your calculations in (a) and (b), Sarika asks you to make a recommendation. The stock of Oddia is trading at $58.50 and the stock of Kesido at $72.75 on the stock market. c. Sarika gives you four choices: i. Buy both Oddia Corp. and Kesido Corp. ii. Buy Oddia Corp. only iii. Buy Kesido Corp. only iv. Do not buy Oddia Corp. and Kesido Corp. Which recommendation do you make? Please explain. Sarika completed her degree at the University of Toronto last summer. She works now at the Canada Pension Plan Investment Board. Her job requires her to manage a diversified portfolio of securities. Sarika wants you to analyze two stocks for her personal portfolio. Here is the information you have: Oddia Corp. is a young company. No dividends will be paid on the stock over the next seven years because the firm needs to plow back its earnings to fuel growth. The company will pay a $10 per- share dividend in eight years and will increase the dividend by 6% per year thereafter. Kesido Corp. just paid a $3.25 dividend per share. Dividends are expected to grow at a 19% rate for the next four years, with the growth rate falling off to a constant 5% per year thereafter. Shareholders require a 13.5% return for Oddia Corp. and a 12.5% return for Kesido Corp. Your friend Sarika knows that you are almost done with the "Introduction to Finance course this term. To test your knowledge, she asks you a few questions that will help her to corroborate her analyses. a. What is the stock price of Oddia Corp.? Please show your calculations. b. What is the stock price of Kesido Corp.? Please show your calculations. Based on your calculations in (a) and (b), Sarika asks you to make a recommendation. The stock of Oddia is trading at $58.50 and the stock of Kesido at $72.75 on the stock market. c. Sarika gives you four choices: i. Buy both Oddia Corp. and Kesido Corp. ii. Buy Oddia Corp. only iii. Buy Kesido Corp. only iv. Do not buy Oddia Corp. and Kesido Corp. Which recommendation do you make? Please explain
