XYZ Ltd operates a chain of vegetarian restaurants for healthy eating. Its services have been in...

 

  

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XYZ Ltd operates a chain of vegetarian restaurants for healthy eating. Its services have been in great demand in recent years and its profits have soared. XYZ Ltd has just paid an annual dividend of $3.70 per share on its ordinary shares. Investors expect that the company will increase the dividend by 21% in each of the next two years, followed by 15% dividend growth in the following two years and after that they anticipate that dividends will grow by about 5% per year. They also currently have 100,000 9% preference shares on issue with a book value of $50 per share paying a $4.50 dividend. Requirements: A. If the market requires a 11.5% return on XYZ Ltd equity, what should their ordinary shares sell for today? [5] B. If the market requires a 11.5% return on XYZ Ltd equity, what should their preference shares sell for today? [3] C. What are the differences between preference shares and ordinary shares? [2] D. Compared to these coupon bonds, zero coupon bonds are typically sold at a discount to the face value. Why? [2] E. Explain how Sole Proprietorship and Corporations are different with regards to the owner's XYZ Ltd operates a chain of vegetarian restaurants for healthy eating. Its services have been in great demand in recent years and its profits have soared. XYZ Ltd has just paid an annual dividend of $3.70 per share on its ordinary shares. Investors expect that the company will increase the dividend by 21% in each of the next two years, followed by 15% dividend growth in the following two years and after that they anticipate that dividends will grow by about 5% per year. They also currently have 100,000 9% preference shares on issue with a book value of $50 per share paying a $4.50 dividend. Requirements: A. If the market requires a 11.5% return on XYZ Ltd equity, what should their ordinary shares sell for today? [5] B. If the market requires a 11.5% return on XYZ Ltd equity, what should their preference shares sell for today? [3] C. What are the differences between preference shares and ordinary shares? [2] D. Compared to these coupon bonds, zero coupon bonds are typically sold at a discount to the face value. Why? [2] E. Explain how Sole Proprietorship and Corporations are different with regards to the owner's

Answer rating: 100% (QA)

A To find the price of ordinary shares today Forecasted dividends for next 5 years are 370 448 542 6... View the full answer