Question: Question Part A ABC has a standard dividend policy. The company will pay a dividend of 2 per share in one year. Following this payment,

Question Part A

ABC has a standard dividend policy. The company will pay a dividend of 2 per share in one year. Following this payment, the company will increase dividends by 3% each year forever. The required return on the companys equity is 6%. Show how you will develop the valuation formula given the above situation. What are the assumptions of this model? What will be a fair price for each ABC share? Required return is the discount rate for the corresponding security.

Question Part B

ABC has 10 million shares of equity outstanding. The current share price is 50 and the book value per share is 5. ABC also has one bond issue outstanding. The bond issue has a face value of 70 million, has an 8% coupon, and sells for 93% of its par value. The bond issue matures in 5 years. The bond makes semi-annual payments. The tax rate is 28%. Estimate the yield to maturity of the bond issue to the nearest whole number.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Consider the composite solid shown. Solid A is a thermally conductive material that is 0.5-cm thick and has a thermal conductivity, KA = 50 W=m K. The back side of solid A (x = 0) is thermally...

please answer all the question Question 4 (14 marks) (a) ABC company will pay dividend $20 per share next year and will increase the dividend by 5% per year thereafter. The required return on this...

Question 4 (14 marks) (a) ABC company will pay dividend $20 per share next year and will increase the dividend by 5% per year thereafter. The required return on this stock is 12%, what is the current...

(a) ABC company will pay dividend $20 per share next year and will increase the dividend by 5% per year thereafter. The required return on this stock is 12%, what is the current share price by Gordon...

Hey man, i need help with 2 assignments, and they are due tomorrow at 5 pm. can you help me ? Assignment 3 Instructions Assignment 3 should be submitted after you have completed Unit 5. This...

QUESTION THREE The world economic forum requires advice on aspects of investments in Africa and expected retums. The following information is available: Pepsi Africa Plc Pepsi Africa maintains a debt...

Problem 1 (10 marks) Three years ago, you purchased a bond for $974.69. The bond had three years to maturity, a coupon rate of 8% paid annually, and a face value of $1,000. Each year you reinvested...

1.Bayou Okra Farms just paid a dividend of $3.15 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 13 percent for...

Problem 1 You estimate that the growth rate in dividends for GDL will be constant for the foreseeable future. How much should you pay for a share of the stock that if it has a dividend yield of...

Stock Valuation ABC.Corp pays a constant $9 dividend on its stock. The company will maintain this dividend for the next eight years and will then cease paying dividends forever. If the required rate...

Introduction Flexipipe is a successful company supplying flexible pipes to a wide range of industries. Its success is based on a very innovative production process which allows the company to produce...

Explain the relationship between marketing research and the marketing concept.

CIO's may have the potential to become the focal point on Business "C - Suite" Executive Boards due to opportunities for Collaboration and Innovation. Dialogue why one may consider a CIO and IT...

Assume that you are investing in A Plc and B Plc. The expected return on firm A is 10% with the risk (standard deviation) of 15%. Firm B expected return is 13% and risk is 25%. If you invest 60% in...

5. Develop a scenario comparing two PH programs and involving the use of a CBA.

2. How should this be dealt with by the organisation?

2. Obtain a copy of an organisations discipline and grievance procedure and compare it with how we have described these processes. Identify and comment on the similarities and differences.

explain what is meant by the term fair dismissal