Tom is considering investing in ordinary shares in Walden Ltd. Tom has gathered data about this investment

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Question:

Tom is considering investing in ordinary shares in Walden Ltd. Tom has gathered data about this investment option.

The company has just paid a dividend of $1.20 to its shareholders. This is expected to grow at the rate of 10% per year indefinitely. Tom's required rate of return from the shares is 20% per annum.

Shares in Walden Ltd are currently selling for $11.05.

Required:
(a) Calculate the value of one share in Walden Ltd correct to the nearest cent.
(b) Tom is very keen to buy the shares in Walden Ltd. Would you recommend this investment? Explain why or why not.
(c) What is a share split? Explain what should happen to the share price when company shares start trading ex-split.