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Calculate the intrinsic value of mzansiwood limited

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Reference no: EM132944592

Nomzamo Mabasa, an equity analyst, is considering an investment in Mzansiwood Production Company that specialises in producing South African films. Mabasa obtains the following information as of December 2020.

  • Current price equals R84.
  • Cost of equity equals R14.20.
  • The firm is expected to exhibit a ROE of 20% over the next three years.
  • The book value per share of Mzansiwood Limited is currently R100.
  • Mzansiwood has a dividend payout ratio of 30%.
  • Forecasted earnings in years one to three are equal to ROE multiplied by beginning book value.
  • Assuming that after three years, continuing residual income falls to zero.

Problem 1: Calculate the intrinsic value of Mzansiwood Limited by using a residual income model, assuming that after three years continuing residual income falls to zero.

A. R150.85
B. R120.26
C. R119.64

Reference no: EM132944592

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