SECTION A Answer this compulsory question 1. (a) Below are the financial statements of TNTT Corporation: Financial Statement for the Year Ended December 2019 (Unit: Millions) Assets Liabilities and Equity Current Assets $1,300 Debt $1,500 Net Plant 2,700 Equity 2,500 Total Assets $4,000 $4,000 Sales Cash Expenses Depreciation Net Operation Income Interest Expenses Earning Before tax Tax liability Net Income Dividend Paid $1,880 850 150 880 200 680 150 $ 530 $ 212 Market Information as of December 2019 Common stock outstanding Market price per share Risk-free rate Expected return on market portfolio Estimate beta 60 million $62 3% 12% 1.70 (0) Calculate the growth rate of dividends if the payout ratio remains constant. [10 marks] (ii) Calculate the intrinsic value of the stock if its growth rate of dividends is constant. [15 marks] (iii) Dividends are expected to grow at 12.72% per year in Year 1, 10% per year in Year 2, and 5% per year into the indefinite future. Is this stock undervalued? Justify your answer with appropriate calculations and arguments. [15 marks] (iv) After the initial public offering, this firm intends to raise funds by selling 10 million of new common stocks to finance its acquisition. The offer price is set at a discount of 20% of its market price. The underwriting fee is 5%, and the firm will also pay a total of $30 million in legal fees and other costs. Calculate the amount of cash proceeds the firm will actually receive, and the direct cost of this issue as a percentage of gross proceeds. [10 marks]