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Maji maji Limited had earnings attributable to ordinary shareholders equal to Ksh. 8,800,000. The firm has 1,100,000 ordinary shares outstanding and a payout policy of 60%. The required rate of return by ordinary shareholders is16%. Required: a) Compute the theoretical value of a share in case of a zero growth firm b) The value of a share if a growth rate of 7% p.a. in perpetuity is expected c) The firm expects a growth rate of 20% p.a. for the first three years, 10% for the next four years and 7% p.a. from year 8 to perpetuity

Maji maji Limited had earnings attributable to ordinary shareholders equal to Ksh. 8,800,000. The firm has 1,100,000 ordinary shares outstanding and a payout policy of 60%. The required rate of return by ordinary shareholders is16%. Required: a) Compute the theoretical value of a share in case of a zero growth firm b) The value of a share if a growth rate of 7% p.a. in perpetuity is expected c) The firm expects a growth rate of 20% p.a. for the first three years, 10% for the next four years and 7% p.a. from year 8 to perpetuity

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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  1. Maji maji Limited had earnings attributable to ordinary shareholders equal to Ksh. 8,800,000. The firm has 1,100,000 ordinary shares outstanding and a payout policy of 60%. The required rate of return by ordinary shareholders is16%. Required:

a) Compute the theoretical value of a share in case of a zero growth firm

b) The value of a share if a growth rate of 7% p.a. in perpetuity is expected

c) The firm expects a growth rate of 20% p.a. for the first three years, 10% for the next four years and 7% p.a. from year 8 to perpetuity

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