Company H is a high-growth company. The current price per share is RMB 20, the dividend per share just paid is RMB 0.377, and the expected dividend growth rate is 6%. The company urgently needs to raise 50 million yuan and plans to issue 10-year convertible bonds. The bond value is 1,000 yuan each, the coupon rate is 5%, and the interest is paid once at the end of each year. The conversion price is RMB 25; the non-redemption period is 5 years. After 5 years, the redemption price of the convertible bond is RMB 1,050, and thereafter it will decrease by RMB 20 every year. Assume that the market interest rate for equal-risk ordinary bonds is 7%, and the company’s average income tax rate is 20%. Calculate the bottom line value of convertible bonds at the end of the fifth year.
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.
Company H is a high-growth company. The current price per share is RMB 20, the dividend per share just paid is RMB 0.377, and the expected
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