Reference no: EM132544168

Problem 1: The Fijians holdings limited last dividend was $1.25 and the directors expect to maintain the historic 4 percent annual rate of growth .You plan to purchase the stock today because you feel that the growth rate will increase to 7 percent for the next three years and the stock will then reach $25.00 per share.

1. How much should you be willing to pay for the stock if you require a 16 percent return?
2. How much should you be willing to pay for the stock if you feel that the 7 percent growth rate can be maintained indefinitely and you require a 16 percent return?

Problem 2: Communications Fiji Limited just paid dividends of $2 per share .Assume that over the next three years dividends will grow as follows ,5% next year, 15% in year two , and 25% in year 3. After that growth is expected to level off constant growth rate of 10 % per year. The required rate of return is 15% . Calculate the intrinsic value using the multistage model.