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(i) Bean Bhd has just announced an ordinary dividend per share of RM20. The past four years’ dividends per share have been RM13, RM14, RM17 and RM18 (most recent dividend) and shareholders require a return of 14%. Calculate Bean Bhd share price. (ii) Bean Bhd now decides to increase its debt level, thereby increasing the financial risk associated with its equity shares. Bean’s shareholders consequently increase their required rate of return to 15.4%. Calculate the new price of Bean’s share. (iii) Discuss the impact of using the dividend growth model as a way of valuing shares.

(i) Bean Bhd has just announced an ordinary dividend per share of RM20. The past four years’ dividends per share have been RM13, RM14, RM17 and RM18 (most recent dividend) and shareholders require a return of 14%. Calculate Bean Bhd share price. (ii) Bean Bhd now decides to increase its debt level, thereby increasing the financial risk associated with its equity shares. Bean’s shareholders consequently increase their required rate of return to 15.4%. Calculate the new price of Bean’s share. (iii) Discuss the impact of using the dividend growth model as a way of valuing shares.

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter7: Stocks (equity) - Characterstics And Valuation
Section: Chapter Questions
Problem 8PROB
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QUESTION 2 
(a) Answer the following questions regarding Bean Bhd.


(i) Bean Bhd has just announced an ordinary dividend per share of RM20. The
past four years’ dividends per share have been RM13, RM14, RM17 and
RM18 (most recent dividend) and shareholders require a return of 14%.
Calculate Bean Bhd share price.

(ii) Bean Bhd now decides to increase its debt level, thereby increasing the
financial risk associated with its equity shares. Bean’s shareholders
consequently increase their required rate of return to 15.4%. Calculate the
new price of Bean’s share.

(iii) Discuss the impact of using the dividend growth model as a way of valuing
shares. 

 

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