Estimate ANAS Software Digital Company common share price

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Reference no: EM133042642

QUESTION - ANAS Software Digital Company has had a very successful year despite the pandemic impact to the overall economy. It is also expecting its earnings per share to grow by 25 percent to reach RM7 for this year.

This year, ANAS is expanding its digital products and is considering purchasing the shares issued by DILLON Security Home System. DILLON's share is priced at RM3.50 per share and had paid dividend of RM2 per share. The analyst had informed that the earnings and dividends are expected to grow at 5% per year for the next 3 years, then 8% for 2 years, and after which the company's growth should be constant at 12% per year.

a) Estimate ANAS Software Digital Company common share's price assuming the industry's price/earning ratio is 12.

b) What is the maximum price per share that ANAS should pay for DILLON if it has a required return of 13% on investments with risk characteristics similar to those of DILLON?

c) Give your comments on the business decision made by ANAS Software Digital Company based on your answers in (a) and (b).

Reference no: EM133042642

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