You are now trying to value the shares of Lekker Wines. For purposes of simplicity, the relevant information about the company is reproduced in Exhibit 5. Because the shares of Lekker Wines are not publicly traded, the beta of equity cannot be estimated from past prices but the comparable listed firms in Exhibit 2 can be used for this purpose. Lekker Wines' growth rate in earnings is expected to equal the sustainable growth rate and performance is not expected to deviate significantly from current levels for the next four years. Thereafter, the growth rate is expected to be 5% forever. a. What is the expected growth rate in earnings per share for the next four-year period? b. What will the price per share be at the end of year 4? a) Return on Equity (ROE) = Net Income/Equity= 3.6/15=0.24 Dividend Payout Ratio = Dividends per share / Earnings per share=1.50/3.60 0.4167 Sustainable Growth Rate = 0.24 * (1 -0.4167) = 0.1416 Therefore, the sustainable growth rate is 14.16%. Additional information: (1 mark) (5 marks) * P/E ratio 25/3.60 =6.94 c. What is the current value per share using the dividend discount model? (10 marks) * Average Beta =(1.05+1.2+0.9+1.35)/4=1.13 Exhibit 2 Firm Beta Debt/Equity Ratio Mirage Wines 1.05 20% Just wines 1.2 50% Tipsy Wines 0.9 10% Silver Wines 1.35 70% Exhibit 5 Current Numbers: Earnings per share = R 3.60 Dividends per share = R 1.50 Market price per share = R 25 Number of shares ('millions) = 1 Market Value of Debt (R' millions) = 12.5 Net Income (R' millions) = 3.6 Interest Expenses (R' millions) = 1 Book Value of Debt (R' millions) = 10 Book Value of Equity (R' millions) = 15 Tax Rate = 28%