ASSSIGNMENT FOUR (a) You have 10% holdings in a company which is expected to grow at 20% for the next four (4) years, then 10% for another three years and finally settle down to a growth of 5% for the indefinite future. The company currently pays dividend of GHC50 per share and this is expected to grow in line with the growth of the firm. You require 10% return on your investments. Required: What value would you place on one share?
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
ASSSIGNMENT FOUR
(a) You have 10% holdings in a company which is expected to grow at 20% for the next four (4) years, then 10% for another three years and finally settle down to a growth of 5% for the indefinite future.
The company currently pays dividend of GHC50 per share and this is expected to grow in line with the growth of the firm. You require 10%
Required:
What value would you place on one share?
(b) i) You are considering the purchase of Cita Company shares. You anticipate that the company would pay dividend GH¢200 per share next year and GH¢225 per share the following year. You believe that you can sell the shares for GH¢1,750 per share two years from now. Your required
ii) You purchased one equity share of Atongo Enterprise for GH¢500 today. If the share pays dividend of GH¢25 in one year, and sells at GH¢550 at that time, what would the dividend yield,
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