The JTA Hedge Fund believe they have found a good investment opportunity in company ZAC plc. ZAC has a current share price of 43, its last dividend per share was 0.75, current EPS is 3.20, JTA expect ZACs growth rate to be 3% a year indefinitely. Calculate ZACs P/E and compare it to the industry average, which stands at 17, comments on whether ZAC seems to be undervalued or overvalued.

According to the Gordon Model, what should be a fair price for ZACs shares, if the expected rate of return is 5%? Are JTA correct in believing that ZACs stock is undervalued and therefore a good investment? What is ZACs PEG?

(23 marks for calculations, 7 marks for discussion)

(30 marks)