Shunlee Steel Industries trades on the Hang Sang Stock Exchange has just paid a dividend (at...

Shunlee Steel Industries trades on the Hang Sang Stock Exchange has just paid a dividend (at t=0) of HKD$$4.1 per share. The growth rate is projected to be 11% for next 33 years before dropping back to the industry average of 3.4% for the foreseeable future. If the equity cost of capital is 16.6%, what are its shares trading for at present?

Expert Solution

Based on the given data, pls find below workings;

Answer: The Share value at present is HKD $ 71.58

Terminal Value = Terminal Dividend / (Cost of Capital - Growth %) = 132.73 / (16.6% - 3.4%) = $ 1005.52

PV of Terminal Value = 1005.52 * 0.0063 (Discounting factor of Year 33) = 6.33

Guessing, if the period is 3 years (instead of 33 years), the Share Price is HKD $ 38.86

jeff jeffy answered 2 years ago

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