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1) Recent dividend distributed RM1. Suppose a firm is expected to increase dividends by 20% in...

1) Recent dividend distributed RM1. Suppose a firm is expected to increase dividends by 20% in one year and by 15% in two years. After that, dividends will increase at a rate of 5% per year indefinitely. If the required return is 20%, calculate the stock.

2)Distinguish the differences between stock splits and stock dividends.

Solutions

Expert Solution

1.   Stock price as on now= RM 8.67

Calculation as below:

Part 2:

Stock split is the process by which existing shares are split into more number of shares. By this process, number of shares will increase but the share capital will remain unchanged.

Stock dividend is the dividend paid in the form of equity shares, instead of cash. Upon distributing stock dividend, both the number of shares as well as the equity capital will increase.

jeff jeffy answered 1 year ago
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