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You are an investor who wants to invest your money in Tjokro Old Pulp & Paper Tbk (TOPP). TOPP's share price is now on the IDX at 5,000. Late last year TOPP announced its dividend of 500/share. Based on information from Bloomberg, it is known that the beta value of TOPP is 1.1. While the ROE and DPR TOPP estimates are as follows.
Year
ROE
DPR
2017
20%
50%
2018
15%
2019
10%
60%
2020
8%
The risk-free interest rate is 7% and the market interest premium is 6%. Through a series of calculations, it is projected that cash dividend growth in 2021 and beyond is 4%.
a. Calculate the value of shares according to DDM as of January 1, 2017!
b. With the same data, TOPP decided not to use 4% growth in 2021 and beyond, but to provide a fixed cash dividend of 1000/share. Does this affect your decision? Explain
c. In your opinion, when is the DDM model appropriate to use to value a stock? Explain!
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