You are trying to estimate the intrinsic value of the shares of Flying High Ltd, a manufacturer of unmanned aerial vehicles, or drones. The company is headquartered in Melbourne, and sells its drones throughout Australia and New Zealand. It is a public company, but is not yet listed on the stock exchange. There are 20,000 shares outstanding.

The firm pays an annual dividend. The most recent dividend was $2.41.

You realise after you began your analysis that the beta of the stock is likely to be different in future from the historical beta. Based on your new estimate of beta, you calculate the required rate of return to be 19.96%.

You should use the above required rate of return for all remaining questions in this part of the exam. Do not use your answer from Question 2.

Suppose you decide to use the dividend discount model to value these shares, and based on your analysis you conclude that the dividend will grow at 2.2% in perpetuity. What is the value of the shares?

a.

$13.87

b.

$12.40

c.

$13.57

d.

$13.35