a)Your friends are planning to invest in the stock market and have asked you for your recommendations on Bipen and Company Ltd (BCL), a successful pharmaceutical company. BCL is benefitting from the recent industry surge due to their anticipated release of a coronavirus vaccine. It is projected that dividends will grow at a rate of 25% in year 1, 20% in year 2, then 15% and 10% in the next 2 years. Dividends are then expected to grow at a long-term rate of 5% after year 4. BCL's cost of capital is 22.5% and their most recent dividend was $1.60.

i.)Calculate BCL's share price today (P0).(9 Marks)

ii.)Calculate the expected share price two years from today (P2).(6 Marks)

b)Your friends are undecided about whether they should be investing in preferred stock or common stock. They would like to have a guaranteed say in the decisions made by the company and they would enjoy the predictability of having a fixed dividend amount. Which of these two investment alternatives will allow them to achieve both goals?%Explain.(6 Marks)

c)Wallen Industries Limited (WIL) has two preferred stocks on the market, each with a par value of $110. The stocks have dividends and yield as presented in the table below.

NAME DIVIDENDS YIELD

SERIES A 6.5% 11.5%

SERIES B 7.8% 14.2%

Calculate the price for each of these preferred stocks?(4 Marks)

Answer rating: 100% (QA)

BCL Valuation and Stock Recommendations a i BCL Share Price Calculation P0 Since dividends are expec... View the full answer