Question 3

(a) Mars Ltd which is expected to pay a dividend of $0.60 at the end of year 1. Now assume that this dividend is expected to grow at a rate of 10% per annum in perpetuity. If the required rate of return on the share is 20%, compute the market value of one share.

(b) Market average return = 13% Return on Treasury bill = 5% Beta value of Share A = 1.4 What is the expected return from Share A by using CAPM?

(c) ABC Co. Has a target capital structure of 40% debt and 60% common equity. The yield to maturity on the companys outstanding bonds is 9%, and its tax rate is 40%. The cost of equity of the company is 13%. What is the companys WACC?

(d) A company has earning per share of $5. The P/E of the industry is 6. What is the share price of the company is using P/E multiple.