BTY Co issues 1000 shares with a par value of R50. They expected a minimum of R50
Question:
BTY Co issues 1000 shares with a par value of R50. They expected a minimum of R50 000 (in equity) from the sale of the shares. However, all 1000 shares were purchased in the market below par, at R25.
Explain the difference between "par value" and "economic value".
Use an appropriate example and explain why the company should consider issuing shares at "no par value".
Assume that you want to invest in XYZ Co, a direct competitor of BTY Co. Your analysis of XYZ Co shows that a share currently pays R1 dividend per quarter. Your research also shows that the dividend has increased by an average of 10% per year over several decades, but the growth is slowing down. You estimate that the dividend will continue to grow by an average of 3% per year going forward. Apply the Gordon growth model to calculate a fair price for the stock, if you want a 10% return on your investment.
2.4 A particular firm's latest dividend is R1.00. The company expects to pay a dividend of R2.50, R3.00 and R3.50 over the next three years. They also expect the dividends to grow at 5% after the third year. With a 10% required return, would you buy the share if it is trading at R55?
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill