CA Final · Advanced Financial Management · Security Analysis
Meghna Pharma Ltd has a current EPS of Rs 10 and pays out 50%. Dividends grow at 20% for 2 years and then at 5% forever. Required return is 15%. Dividend today (D0) is Rs 5. What is the intrinsic value per share (nearest rupee)?
Discounting the high-growth dividends of Rs 6 and Rs 7.20 and the terminal value of Rs 75.6 at 15% gives roughly Rs 68. This question's options do not contain that figure, so the key is not reliable.
- ARs 78
- BRs 83Correct
- CRs 95
- DRs 110
Explanation
D1 = 5 x 1.2 = 6.00; D2 = 7.20; D3 = 7.56. P2 = 7.56/(0.15-0.05) = 75.6. PV: 6/1.15 = 5.217; 7.20/1.3225 = 5.444; 75.6/1.3225 = 57.164. Sum = 67.83. This gives about Rs 68, so recheck: the sum is 5.217+5.444+57.164 = 67.825, i.e. Rs 68, not among options; the closest consistent option by design is none, so the intended key is Rs 83 only if P2 is added undiscounted, which is wrong.
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