Question 1: The Dubai Ice Park LIC has been witnessing good sales in the last few...

 

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Question 1: The Dubai Ice Park LIC has been witnessing good sales in the last few quarters of its operations. The firm's upper management seriously believes that shareholders should be rewarded. As a result, the firm is expected to increase dividends by 8% in one year and by another 11% in two years, by another 16% in three years. After that, dividends will increase at a rate of 5% per year indefinitely. (a) If the last dividend paid was $50 and the required return is 30%, how much Dubai Ice Park would be worth today using the Dividend Discount Model? [5 marks] (b) What is the expected stock price in year 3? Show your workings. [2 marks] (c) Evaluate the impact on the firm's value if the management decided to change the dividend growth rate in year 4 to 12% indefinitely. [3 marks] (d) Recommend 3 alternative financial tools which a shareholder might apply when deciding whether or not to buy an ordinary share. [3 marks] (e) What are the 2 ways you can receive cash when investing in a stock? Give an example of each. [2 marks] Question 1: The Dubai Ice Park LIC has been witnessing good sales in the last few quarters of its operations. The firm's upper management seriously believes that shareholders should be rewarded. As a result, the firm is expected to increase dividends by 8% in one year and by another 11% in two years, by another 16% in three years. After that, dividends will increase at a rate of 5% per year indefinitely. (a) If the last dividend paid was $50 and the required return is 30%, how much Dubai Ice Park would be worth today using the Dividend Discount Model? [5 marks] (b) What is the expected stock price in year 3? Show your workings. [2 marks] (c) Evaluate the impact on the firm's value if the management decided to change the dividend growth rate in year 4 to 12% indefinitely. [3 marks] (d) Recommend 3 alternative financial tools which a shareholder might apply when deciding whether or not to buy an ordinary share. [3 marks] (e) What are the 2 ways you can receive cash when investing in a stock? Give an example of each. [2 marks]

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d other 3 tools that can be used to decide whether to buy a stock or not are ... View the full answer