Assume that BHF Ltd has a current growth rate of 10% p.a. that is expected to...

Assume that BHF Ltd has a current growth rate of 10% p.a. that is expected to be maintained for only another three years and then fall to 5% p.a., where it is expected to remain indefinitely. Given that the required return on BHF's shares is 12% and that the last dividend of 50 cents has just been paid, the price of BHF's shares will be:

Expert Solution

Year 1 dividend = 0.5 (1 + 10%) = 0.55

Year 2 dividend = 0.55 (1 + 10%) = 0.605

Year 3 dividend = 0.605 (1 + 10%) = 0.6655

Year 4 dividend = 0.6655 (1 + 5%) = 0.69878

Value in year 3 = Year 4 dividend / required rate - growth rate

Value in year 3 = 0.69878 / 0.12 - 0.05

Value in year 3 = 0.69878 / 0.07

Value in year 3 = 9.98257

price per share = Present value of cash flows

Present value = Future value / (1 + rate)^time

Present value = 0.55 / (1 + 0.12)^1 + 0.605 / (1 + 0.12)^2 + 0.6655 / (1 + 0.12)^3 + 9.98257 / (1 + 0.12)^3

Present value = 0.49107 + 0.4823 + 0.47369 + 7.1054

Present value = $8.55

jeff jeffy answered 2 years ago

Dameeba Corp has a current D/V-ratio of 10% with expected cost of debt 2,1% p.a. The...

Dameeba Corp has a current D/V-ratio of 10% with expected cost of debt 2,1% p.a. The levered equity beta is 0,75. An increase to a target D/V-ratio of 90% is now planned increasing the expected cost of debt to 4,3% p.a. The corporate tax rate is 20%. The risk-free rate is 1% and the market risk premium 5% p.a. What will be Dameeba Corp’s new equity beta? a. 0,885 b. 1,142 c. 1,030 d. 1,208

Question 5 (10 marks) Fortescue Ltd is offering bonds with a coupon rate of 8% p.a.,...

Question 5 Fortescue Ltd is offering bonds with a coupon rate of 8% p.a., paid semi-annually. The par value of each bond is $1,000 and has eight (8) years to maturity. The yield to maturity is 9%. What is the value of the bond?

(10 marks) Fortescue Ltd is offering bonds with a coupon rate of 8% p.a., paid semi-annually....

Fortescue Ltd is offering bonds with a coupon rate of 8% p.a., paid semi-annually. The par value of each bond is $1,000 and has eight (8) years to maturity. The yield to maturity is 9%. What is the value of the bond?

The dividends of XYX Ltd are expected to grow at a rate of 5%, 10% and...

The dividends of XYX Ltd are expected to grow at a rate of 5%, 10% and 15% p.a. during years 1 through 3 respectively. After that, the dividends are expected to grow at a long-run rate of 5% p.a. forever. The company’s current dividend per share is $1.50 and the required rate of return on the shares is 12% p.a. Based on this information, the current price should be closest to:

Yankees, Inc. (YANK) has current earnings per share of $1.96 and an expected earnings growth rate...

Yankees, Inc. (YANK) has current earnings per share of $1.96 and an expected earnings growth rate of 2.2%. The required return on the stock is 13% and the current book value per share is $12.70. Estimate the price of YANK using the Residual Income Model? $16.31 $16.67 $15.96 $15.62 $15.07

Alfaeba Corp has a current D/V-ratio of 85% with expected cost of debt 5,7% p.a. The...

Alfaeba Corp has a current D/V-ratio of 85% with expected cost of debt 5,7% p.a. The levered equity beta is 2,5. A reduction to a target D/V-ratio of 50% is now planned lowering the expected cost of debt to 4% p.a. The corporate tax rate is 20%. The risk-free rate is 1% and the market risk premium 5% p.a. What will be Alfaeba Corp’s new WACC? a. 5,901% b. 6,47% c. 6,021% d. 6,87%

QUESTION 4 Jefta has a 30-year policy with SANLAM. The illustrated growth rate is 6% p.a....

QUESTION 4 Jefta has a 30-year policy with SANLAM. The illustrated growth rate is 6% p.a. compounded monthly and the premium increases every January 01 by 10%. The initial premium was $300 per month. Jefta’s first monthly premium was deducted on January 31, 1998. 1. Determine the monthly premium in the last year. 2. Determine the maturity value. A compact disc press is purchased for $1.2 million and is expected to rise in cost at a rate of 8% p.a.,...

Jim Ltd.’s next dividend will be $4, the dividend is expected to grow at 8% p.a.,...

Jim Ltd.’s next dividend will be $4, the dividend is expected to grow at 8% p.a., for the following 4 years. After that the growth rate in dividends will be 4% per year indefinitely. Required rate of return is 10% p.a. Question: Calculate the current value of Jim Ltd.’s shares

Assume that a company just paid a dividend of $2 per share. The expected growth rate...

Assume that a company just paid a dividend of $2 per share. The expected growth rate in the dividend is a constant 10%. If your required rate of return for the stock is 15%, what is the value of the stock to you today?

10. Security A has an expected rate of return of 10% and a standard deviation of...

10. Security A has an expected rate of return of 10% and a standard deviation of 16%. Security B has an expected rate of return of 8% and a standard deviation of 12%. Let A and B are perfectly negatively correlated. The expected return of a risk-free portfolio formed with A and B is Select one: a. 10% b. 9.47% c. 7.86% d. 8.86%

Question