Alif company’s total investment in assets is OMR 2,000,000. It has 200,000 shares of OMR 10 each. Its expected Rate of Return on Investment is 20% and Cost of Capital is 12%. The company has a policy of retaining 25% of its profits. Determine the value of the firm using Gordon’s Model. Question No. 2 Summer LLC has 100,000 outstanding shares of OMR 10 each. The company earns at a rate of 25% on its investments and retains 40% of earnings as a policy. If Cost of Capital is 15%, calculate price of the share according to Gordon’s Model. The company has total investment of around OMR 1500,000 in assets. If payout ratio changes to 60% how will share price change? Also comment on the optimal dividend policy for Summer LLC as per Gordon’s Model? Question No. 3 Yasir Ltd. has 1,00,000 equity shares of OMR 10 each fully paid. The company expects its earnings at OMR12,00,000 and Cost of Capital at 10% for the next financial year. Using Walter’s Model, what dividend policy would you recommend when the Rate of Return on Investment of the company is estimated at 6% and 15%? What will be the price of equity share if your recommendations are accepted?
Alif company’s total investment in assets is OMR 2,000,000. It has 200,000 shares of OMR 10 each. Its expected Rate of
Question No. 2
Summer LLC has 100,000 outstanding shares of OMR 10 each. The company earns at a rate of 25% on its investments and retains 40% of earnings as a policy. If Cost of Capital is 15%, calculate price of the share according to Gordon’s Model. The company has total investment of around OMR 1500,000 in assets.
If payout ratio changes to 60% how will share price change? Also comment on the optimal dividend policy for Summer LLC as per Gordon’s Model?
Question No. 3
Yasir Ltd. has 1,00,000 equity shares of OMR 10 each fully paid. The company expects its earnings at OMR12,00,000 and Cost of Capital at 10% for the next financial year.
Using Walter’s Model, what dividend policy would you recommend when the Rate of Return on Investment of the company is estimated at 6% and 15%? What will be the price of equity share if your recommendations are accepted?
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