Explain why temporary supernormal growth model

Assignment Help Financial Management

Reference no: EM134040331

Question

VinFast, a leading Vietnamese electric car manufacturer is grabbing recent headlines with their affordable and luxury electric vehicles sold in major developed markets of North America and Europe. Because of a lack of competitors in their niche market, they are expected to have annual growth of 18% in the next 3 years, followed by 12% for the following 2 years, another 10% in the next 3 years before slowing down to 4% per year, indefinitely, as rival firms scale up their electric vehicle production capacity. As a leading analyst of Novice Hedge Fund, you believe VinFast has a beta of 1.12 and the risk-free rate of return and the Dow Jones Industrial Average index rates to be 3.2% and 6.25%, respectively. VinFast followed a 25% dividend retention rate and had an EPS of $2.5 last year.

1. Calculate the intrinsic value of VinFast stock today.

2. Explain why the Temporary Supernormal Growth model is more appropriate for VinFast equity valuation, compared to constant growth model or the relative valuation approach?

3. As an informed investor, how do you think the market efficiency level vary between Vietnam and North America? What are the implications of Efficient Market Hypothesis in the context of VinFast cross-listing in these two markets?

Reference no: EM134040331

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