FM Co has in issue ordinary shares with a nominal value of K0-25 per share. These...

 

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FM Co has in issue ordinary shares with a nominal value of K0-25 per share. These shares are traded on the Lusaka Stock Exchange (LUSE). It is now 2022 and the company has just paid a dividend of KO-450 per share. Recent dividends of the company are as follows: Year 2022 2021 2020 2019 2018 Dividend per share ко-450 ко-428 ко-408 ко 389 ко-370 FM Co also has in issue loan notes which are redeemable in eight years' time at their nominal value of K100 per loan note and which pay interest of 6% per year. FM Co has a cost of equity of 10% per year and a before-tax cost of debt of 4% per year. The company pays corporation tax of 25% per year. Ordinary shares are currently quoted at K11.85 ex-div on LUSE. REQUIRED: a) Using the dividend growth model, calculate the market value of each ordinary share and comment on whether the shares are currently under or over-valued. b) Based on your findings in (a) above and in view of efficient market hypothesis, recommend the action needed to be taken by the following groups of investors and why; i Existing shareholders that desire to sell their current shares. ii Potential investors that desire to buy shares in the firm. c) Briefly discuss the implication of capital markets being semi-strong form efficient. FM Co has in issue ordinary shares with a nominal value of K0-25 per share. These shares are traded on the Lusaka Stock Exchange (LUSE). It is now 2022 and the company has just paid a dividend of KO-450 per share. Recent dividends of the company are as follows: Year 2022 2021 2020 2019 2018 Dividend per share ко-450 ко-428 ко-408 ко 389 ко-370 FM Co also has in issue loan notes which are redeemable in eight years' time at their nominal value of K100 per loan note and which pay interest of 6% per year. FM Co has a cost of equity of 10% per year and a before-tax cost of debt of 4% per year. The company pays corporation tax of 25% per year. Ordinary shares are currently quoted at K11.85 ex-div on LUSE. REQUIRED: a) Using the dividend growth model, calculate the market value of each ordinary share and comment on whether the shares are currently under or over-valued. b) Based on your findings in (a) above and in view of efficient market hypothesis, recommend the action needed to be taken by the following groups of investors and why; i Existing shareholders that desire to sell their current shares. ii Potential investors that desire to buy shares in the firm. c) Briefly discuss the implication of capital markets being semi-strong form efficient.

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