Neco Model Questions Vol1 2017 Commerce Question 14

Two listed companies, Alpha and Beta, are being evaluated. - Alpha: share price ₦(45), earnings per share (EPS) ₦(3.60), dividend per share ₦(0.90). Expected earnings growth rate 8 % per year for the next 5 years. Required rate of return 12 %. - Beta: share price ₦(60), EPS ₦(5.20), dividend per share ₦(1.20). Expected earnings growth rate 5 % per year for the next 5 years. Required rate of return 10 %. Using the Gordon Growth Model, compute the intrinsic value of each share. Then calculate the price‑to‑earnings (P/E) ratio and dividend yield for each. Based on a combination of lower P/E and higher dividend yield relative to intrinsic value, recommend which stock is undervalued and give its intrinsic value (rounded to two decimal places).