Reference no: EM133043777
Question - 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.
Calculate the intrinsic value of Mzansiwood Limited by using a residual income model, assuming that after three years continuing residual income falls to zero.
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