Question

You are considering investing in JouJou Ltd, a public company that manufactures bottle openers and other kitchen tools. In considering purchasing shares in JouJou Ltd, you are utilising your valuation skills to see if the market price is fair. Using the information below, find the theoretical value of one share of JouJou Ltd and compare it to the current market price of $42.53:  A dividend was paid out yesterday of $0.50;  The next dividend of $0.50 is expected to occur in two years’ time, and this dividend will be constantly paid every six months for 6 consecutive dividend payments (this includes the dividend at year 2);  Thereafter, dividends will grow at 6% p.a. compounded semi‐annually in perpetuity; and,  The required rate of return on equity is 8% p.a. compounded quarterly and all dividends are paid out semi‐annually. Would you purchase JouJou Ltd? In providing your decision, you may need to state some assumptions that allow you to compare the market value with the calculated share price.  

Answer 1