Compute the intrinsic value of firm p common shares

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Question - Assume today is 31 December 2020. Firm P, a gold mining company, just paid dividends to its common shareholders. It is expected to pay dividends of $ 9 million, $12 million, $5 million and nil dividends, for the next 4 years.

Four years from now, the estimated net profit after tax is $50 million. The company adopts the policy of not issuing preference shares. The expected price multiple for the year 2024 is 15 times of earnings. The cost of equity for Firm P is 10 percent.

Required -

1. Compute the intrinsic value of Firm P's common shares.

2. Critically evaluate the use of the Dividend Discount Model in valuing the shares of Firm P, and explain which alternative methods may be more appropriate.

Reference no: EM133087967

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