You are planning to invest in a stock. Your friend suggests two stocks, Top Tree and BSS, for you to consider. To help y

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You Are Planning To Invest In A Stock Your Friend Suggests Two Stocks Top Tree And Bss For You To Consider To Help Y 1 (96.59 KiB) Viewed 28 times

You are planning to invest in a stock. Your friend suggests two stocks, Top Tree and BSS, for you to consider. To help you make the decision, you have gathered the relevant information for both stocks. Top Tree BSS FBMKLCI Current Price RM30 RM32 Industry Technology Consumer P/E ratio (current) 25 14 16 P/E ratio (5-year average) 27 16 16 Price/book ratio (current) 10 3 3 Price/book ratio (5-year average) 12 4 2 Beta 1.5 1.1 1.0 Dividend Yield 0.30% 2.70% 2.80% In addition to relative valuations, you also use a constant growth dividend discount model to find the stocks' intrinsic value. It is estimated that the value of Top Tree to be RM28 per share and the value of BSS be RM34 per share. However, she thinks it is not appropriate to use a constant growth dividend discount model to value Top Tree stock. Do you agree with her? Briefly discuss weaknesses of this dividend discount model and explain why this model may be less suitable for valuing Top Tree than for valuing BSS.