Lara, a 40-year old financial analyst and mother of two teenage children considers herself as a...

Lara, a 40-year old financial analyst and mother of two teenage children considers herself as a savvy investor. She has increased her investment portfolio considerably over the past five years. Although she has been fairly conservative with her investments, she now feels mor confident in her investment knowledge and would like to branch out into some new areas that could bring higher returns. She has between RM50,000 to RM100,000 to invest. She was considering an investment in 5000 shares of high-technology common stock in ACE market, currently is selling at RM6.55/share. After a discussion with her friend who is an economist with a major commercial bank, Lara believes that the long-running bull market due to cool off and thar economic activity will slow down. She analyses this stock has 10 million shares outstanding and the last year’s earnings per share was RM1.53. The firm’s stockholder equity is RM12 million and the total amount of dividend declared is RM750,000. The company sales of RM12 million and net profit margin of 6% with retention rate (dividend payout ratio) of 40%. Current net profit after taxes shows an increment of 20% from the last year. The growth rate of the dividend of the stock is 7% and the required rate of return is 15%. Required:

a. Compute the price earnings ratio. From the answer, what the indication of the firm?

b. How much the net income after tax of this stock in last year?

c. What is the ROE of the stock? Is the ROE gives you a good indication of this stock?

d. Compute the intrinsic value of the stock today.

e. What is your opinion of this stock and will you proceed to invest in this stock?

Solutions

Expert Solution

Hence, the company provide a positive return. So, lara can proceed to invest in stock

ekkarill92 answered 1 year ago

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