Question 4 (20 marks)In the recent annual general meeting of Umi Technology Limited, the board of directors declared an annual dividend of $5.00 per share, and the shareholders agreed to a rights issue of shares in order to raise funds to expand the business to the provinces.Required:(a) Some shareholders expects the dividend rate of $5.00 per share to decline at a rate of 5% in the next three years and thereafter grow at a constant rate of 10% indefinitely as the business expands to all provinces. Suppose these shareholders hold a required rate of return of 15%, what is the expected price per share? (10 marks)(b)Some shareholders holds the belief that in order for the business to expand, it must return 60% of its annual earnings and reinvested the retain earnings to earn a 15% rate of return. If they demand a required rate of return of 15%, what is the expected price per share? (7 marks)(c)The Board of directors expect a required rate of return of 15% and no decline or growth in the dividend per share. What is the expected price per share? (3 marks)

Answer rating: 100% (QA)

a We are given Current dividend per share D0 500 Expected decline rate in dividend g 5 ... View the full answer