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Question 1 (16 marks)You are provided with the following information relating to two companies. Assume a one-year holding period.BNM (Pty) LtdDFR (Pty) LtdAnnual dividend growth rate10%5%Return on Equity (RoE)12%14%Current share price (P0)R23.00R44.00Expected share price (P1)R24.00R40.00Current dividends (D0)R2.00R4.00Risk-adjusted interest rate (k)15%12%1.1 Define the intrinsic value of a share in your own words. (1)1.2 Calculate the intrinsic value of BNM (Pty) Ltd and DFR (Pty) Ltd. (4)1.3 Which share would you buy on the basis of it being undervalued? (1)1.4 Calculate the Price/Earnings ratio of the two companies, if 60% of earnings are expected to be paid out by BNM (Pty) Ltd and 40% of earnings are expected to be paid out by DFR (Pty) Ltd. (4)1.5 As an investor, would you rather prefer that the company pays out earnings as dividends for BNM (Pty) Ltd and DFR (Pty) Ltd, or would you rather the dividends get reinvested? Provide reasons for your answer. (2)1.6 Assume that the dividends are expected to grow by 10% (BNM) and 5% (DFR) indefinitely. Calculate the value of both of the companies. Assume k = 15% for both companies and assume the same reinvestment rates as in 1.4. above. (4)TOTAL MARKS: 16