Question

The below excerpt is in preparation for a multiple choice quiz.

Sonic Health is a major Australian company listed on the ASX with a market capitalisation of $13,676,000,000 consisting of 475,200,000 shares outstanding on the 8th of June 2020. The current dividend paid per share is $0.84. It is expected that the dividend will grow at a rate of 5% because of COVID-19 vaccine that could boost the profitability of the free cash flows of the company although most analysts forecast a higher growth rate. The required rate of return for the firm is 7.67%.

Mentor’s guidance: Assume that you are a finance officer of Venture Capital Brisbane and your supervisor who has been your mentor for the past six months asked you to prepare a detailed analysis of your calculations in MS Excel. Obviously, the head of the investment modelling will be interested in knowing what the price of the shares is using two methods listed below:

1. Market capitalisation and number of shares
2. Gordon’s growth model.

Answer 1