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QUESTION 20 The high-tech company BiTech PLC is trading at a price of 2500p per share....

QUESTION 20

  1. The high-tech company BiTech PLC is trading at a price of 2500p per share. Investors expect the dividend of the company to grow at 11% per annum (per year) over the next 5 years. After that, they expect that dividend growth will decline to 6%. The company's last paid dividend is 20p per share. Investors expect the required return to be 8% per annum for the first 5 years and then drop to 7% after that. Which of the following is true?

    A.

    The stock is correctly priced by the market.
    B.

    The stock is overpriced by the market and the stock price exceeds intrinsic value by less than 50p.
    C.

    The stock is underpriced and the intrinsic value exceeds stock price by less than 50p.
    D.

    The stock is underpriced and the intrinsic value exceeds stock price by more than 50p.
    E.

    None of the above
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