2. Arcarde Ltd issues both ordinary shares and preference shares to raise capital, in which 500,000...

2. Arcarde Ltd issues both ordinary shares and preference shares to raise capital, in which 500,000 ordinary shares have been issued at the price of $10 and 100,000 preference shares with a par value of $100.

a. Company promises to pay an annual dividend rate of 6.5% per share for its preference shares. If similar investment has a rate of return of 10% p.a, what is the fair price of Arcarde’s preference share?

b. Company also plans to pay dividend for its ordinary shares as follow: Y1 (next year): $0.8; Y2: $1; Y3: $1, after year 3, the dividend will growth at the rate of 3% and company’s rate of return is currently 9%, what should be the fair price of each ordinary shares?

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2. Arcarde Ltd issues both ordinary shares and preference shares to raise capital, in which 500,000...

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