[Joephil]

t is the beginning of 2006. You are considering purchasing shares in ANZ. On analysis of the actual and forecast information available you asses the following:
Dividend per share in : 2005 ($1.01), 2006 ($1.10), 2007 ($1.17), 2008 ($1.30).
Earnings per share in: 2005 (1.45), 2006 (1.62), 2007 (1.81), 2008 (2.00)
P/E ratio in: 2006 (15.03), 2007 (13.4), 2008 (12.0)
Market P/E in : 2006 (18.87), 2007 (14.25), 2008 (12.66)
Beta in 2006 (1.15) and 3 years Average ROE in 2006 (10%)

In addition, you observe the current return on 90 day government bills to be 5.5%p.a, the historical risk premium on the market to be 8%p.a. ANZ pays dividends at the end of each year and the trade on ANZ was at $22.80 per share.

a.) Use the dividend valuation model to determine an intrinsic value of an ANZ shares given this information. Assume that the average ROE is expected to remain stable, the payout ratio is expected to remain stable from 2008 on, and the growth rate in dividends is expected to correspond to the sustainable growth rate from 2008 onwards.


b.) Given the observed current market price for ANZ, and the estimated earnings for 2006, what value is the market currently placing on growth opportunities? Assume Ke=15%


C.) Do you consider ANZ shares to be under or overvalued by the market?

Please provide step by step calculations for my understanding. I really appreciate your help.