Blooming Ltd. currently has the following capital structure:Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with anannual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and willmature in 25 years.Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend pershare in the next financial year. The firm is maintaining 3% annual growth rate in dividend, whichis expected to continue indefinitely.Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixeddividend rate of 14%.Company tax rate is 30%.Required: Complete the following tasks: b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%?
Blooming Ltd. currently has the following capital structure:
Debt: $2,500,000 par
annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will
mature in 25 years.
Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per
share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which
is expected to continue indefinitely.
Company tax rate is 30%.
Required: Complete the following tasks:
b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%?
The dividend discount model is the model of stock valuation that assumes that the stock price of a company is the present value of all the dividends a company is expected to pay till perpetuity assuming that the dividend will grow at a constant rate.
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