It is estimated that by the end of 2018, India would be the world’s third largest automobile market after US and China. The flourishing growth in the automobile sector is backed by rapid urbanisation...

It is estimated that by the end of 2018, India would be the world’s third largest automobile market after US and China. The flourishing growth in the automobile sector is backed by rapid urbanisation and an overwhelming growth in the middle-class population.

The shares of Red Bull and dark Horse both are car manufacturers and are currently trading at ₹60 and ₹100, respectively on NSE. Both the companies have track record of paying dividends and the face value per share is ₹5 for both companies. The companies are expected to declare the dividends of ₹1.5 and ₹2.50 respectively, over the next year. Red Bull’s projected earnings per share is ₹2.50 and that of Dark Horse is ₹4. Red Bull’s dividend is expected to grow at 10% p.a. in the future and that of Dark Horse by 11% p.a. Financial Analysts have estimated the likely prices for the year ahead on the two stocks to be ₹70, ₹75 and ₹80 for Red Bull and ₹124, ₹136 and ₹150 for Dark Horse with equal probability for both of the stocks.

Mr. Acharya wants to pick either of the stocks and seeks your comments. His required rate of return is 13% on his investment.