DD Co. has a dividend payout ratio of 40% and has maintained this payout ratio for...

 

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DD Co. has a dividend payout ratio of 40% and has maintained this payout ratio for several years. The current dividend per share of the company is RM0.50 per share and it expects that its next dividend per share, payable in one year's time, will be RM0.52 per share. The capital structure of the company is shown in Table Q2. Bond A will be redeemed at nominal in ten years' time and pays annual interest of 9%. The cost of debt of this bond is 9.83% per year. The current ex interest market price of the bond is RM95. Bond B will be redeemed at nominal in four years' time and pays annual interest of 8%. The cost of debt of this bond is 7.82% per year. The current ex interest market price of the bond is RM105. DD Co. has a cost of equity of 12%. Ignore taxation. Calculate: (i) (ii) (iii) Dividend share price using the dividend growth model. Capital gearing (debt divided by debt plus equity) using market values. Market value weighted average cost of capital. Table Q2: Capital structure of DD Co. Equity: Ordinary shares (nominal value RM1 per share) Reserves Total Debt: Bond A (nominal value RM100) Bond B (nominal value RM100) Total RM (in million) 25 35 60 20 10 30 DD Co. has a dividend payout ratio of 40% and has maintained this payout ratio for several years. The current dividend per share of the company is RM0.50 per share and it expects that its next dividend per share, payable in one year's time, will be RM0.52 per share. The capital structure of the company is shown in Table Q2. Bond A will be redeemed at nominal in ten years' time and pays annual interest of 9%. The cost of debt of this bond is 9.83% per year. The current ex interest market price of the bond is RM95. Bond B will be redeemed at nominal in four years' time and pays annual interest of 8%. The cost of debt of this bond is 7.82% per year. The current ex interest market price of the bond is RM105. DD Co. has a cost of equity of 12%. Ignore taxation. Calculate: (i) (ii) (iii) Dividend share price using the dividend growth model. Capital gearing (debt divided by debt plus equity) using market values. Market value weighted average cost of capital. Table Q2: Capital structure of DD Co. Equity: Ordinary shares (nominal value RM1 per share) Reserves Total Debt: Bond A (nominal value RM100) Bond B (nominal value RM100) Total RM (in million) 25 35 60 20 10 30

Answer rating: 100% (QA)

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