Stella Berhad currently paid RM1.40 of dividend per share to its shareholders. In the post-pandemic Covid-19, this company decided to embark on aggressive financial strategy to conquer the market. Hence, it is expected that the growth rate of dividend of this company is to grow rapidly over the next four years at 12%. In the fifth year, the dividend growth rate will return to its historical growth rate of 7% and will continue to grow at that level for the foreseeable future.

Required:

i. Calculate the new intrinsic value of Stella Berhads stock for an investor with 14% required rate of return. (6 marks)

ii. Based on your answer in (i), analyse the effect on the investors rate of return if he purchased the stock at RM34 per share. (2 marks)