(i) Assuming a 13.9% discount rate, estimate the value of Union Chemical Bhd. (ii) Determine whether Union Chemical Bhd is undervalued or overvalued. (iii) “The constant-growth model should not be used with just any stock.”Explain with reasons the assumptions used by analysts when using the constant-growth dividend model. Question 3(a)Ann Lee is the portfolio manager of a Singapore based cquity fund. She is analysing the valueof Union Chemical Bhd which manufactures fertilizers and food additives. The company'sdividend per share for the fiscal year ended 30 June 2021 was RM0.20 and its current shareprice is RM8.50 each. Analysts have forecasted a 30% growth rate for the next 5 years andthereafter 9.4% per year forever.Required:

As per the Dividend Discount Model, the value of a share is the discounted value of its return or…

Assuming a 13.9% discount rate, estimate the value of Union Chemical Bhd. (ii) Determine whether Union Chemical Bhd is undervalued or overvalued. (iii) “The constant-growth model should not be used with just any stock.”

Assuming a 13.9% discount rate, estimate the value of Union Chemical Bhd. (ii) Determine whether Union Chemical Bhd is undervalued or overvalued. (iii) “The constant-growth model should not be used with just any stock.”

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter13: Valuation: Earnings-based Approach

Section: Chapter Questions

Problem 18PC

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