QUESTION 7Manchester plc is expected to pay annual dividends of £1.50, £1.75 and £2.00 per share at the end of each of the next three years(i.e., from t-1 to t=3). After year 3, annual dividends are expected to grow at a rate of 2% forever. Assuming that shareholders ofManchester plc. require a rate of return equal to 5% per year, what is the fair value for the share of Manchester plc.?O £95.52£64.70O £48.37O £63.48

Out of the profit earned by the business organizations, some of the profit is distributed to the…

Answered: Manchester plc is expected to pay…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Dustin Co. pays a current (annual) dividend of $1 and is expected to grow at 6% for two years and the selling price of its stock is expected to be S13 and $16 respectively one and two years from now. If the required return for Dustin is 9%, what is the intrinsic value of its stock held for one year and two years respectively?
suppose a company pays a Rs. 2.5 annual dividend on its common stock in a single annual installment, and management plans on raising this dividend by 8% per year, indefinitely, If the required rate on the stock is 15%. what is the current share price?
The current share price of Blueberry plc is 205p. It has a policy of paying out 50% of earnings in dividends each year. The earnings history of the firm is as follows: Recently reported One year ago Two years ago Three years ago Four years ago Five years ago 14p 13p 12p 11p 10p 9p The rate of growth in earnings and dividends shown in the past is expected to continue into thefuture. The risk-free rate of returnis 6.5% and the risk premium on the averageshare has been 5% for decades. Blueberry is in a highersystematic risk class than theaverage share and therefore the riskpremium needs to beadjusted by a beta factor of1.2. Required: 1. Use P/E module to decide whether Blueberry share's price is under- or over-priced 2. Use the Dividend Discount Model to value Blueberry's share. (c) Why is it more difficult to value a private company rather than public company?
DFB, Inc. expects earnings next year of $5.00 per share, and it plans to pay a $3.00 dividend to shareholders (assume that is one year from now). DFB will retain $2.00 per share of its earnings to reinvest in new projects that have an expected return of 15.0% per year. Suppose DFB will maintain the same dividend payout rate, retention rate, and return on new investments in the future and will not change its number of outstanding shares. Assume next dividend is due in one year. a. What growth rate of earnings would you forecast for DFB? b. If DFB's equity cost of capital is 12.0%, what price would you estimate for DFB stock today? c. Suppose instead that DFB paid a dividend of $4.00 per share at the end of this year and retained only $1.00 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesting in as many new projects. If DFB maintains this higher payout rate in the future, what stock price would you estimate for the firm now? Should DFB raise its…
a)Calculate the future value of £1,000 invested at a 7% per annum interest rate with daily compounding for 6 years. b) The ordinary shares of Delta Ltd are quoted at £5.00 cum-dividend. A dividend of 30p is just about to be paid. The company has an annual accounting rate of return of 11%, and each year pays out 28% of its profits after tax as dividends. Calculate the cost of equity using the Dividend Valuation Model (DVM). c) A gilt with a face value of £100 and 2 years to maturity pays a 6% annual coupon. It is quoted at a price of £99.09. What is its yield to maturity (YTM)?
a) Suppose you borrow $2,000 at the annual interest rate of 9%, and you are required to pay it back in 12 equal monthly installments, the first one is due at the end of the first month. i) How much is the monthly installment? ii) Draw up an amortization schedule. b) BK Ltd has just paid a dividend per share of $1.20. Shares are valued only based on expected dividends. An annual sustainable growth of dividends of 4% is assumed. The appropriate discount rate (i) is 10% per year. The planning horizon is limited to 20 years. Compute the share value.
Rylan Industries is expected to pay a dividend of $5.70 year for the next four years. If the current price of Rylan stock is $31.33, and Rylan's equity cost of capital is 15%, what price would you expect Rylan's stock to sell for at the end of the four years? O A. $26.33 B. $73.72 OC. $21.06 OD. $47.39
The Alfa Ltd currently pays $4.00 of dividends per share of common stock. The required rate of return on Alfa Ltd stock is 7%. a. If the expected dividend growth rate is 3% per year, forever, what is the value of a share of Alfa Ltd common stock?b. If the expected dividend growth rate is 5% per year, forever, what is the value of a share of Alfa Ltd common stock?c. If the dividend growth rate is expected to be 5% per year of the next four years and 3% thereafter, what is the value of a share of Alfa Ltd common stock?
9. CEPS Group announced today that it will begin paying annual dividends next year. The firstdividend will be OMR 0.65 a share. The following dividends will be OMR 0.72, OMR 0.85,OMR 0.89, and OMR 0.95 a share annually for the following 4 years, respectively. After that,dividends are projected to increase by 4 percent per year. How much are you willing to pay tobuy one share of this stock today if your desired rate of return is 11.5 percent? notes: show all calculation
News Corp is expected to pay a dividend of $0.8 in one year. The dividend is expected to grow at 12% in the following 3 years and then at a constant rate of 4% per annum indefinitely. If the required rate of return is 12%, what is the price of the company's share today? Please illustrate your answer using a timeline.
DFB, Inc. expects earnings next year of $4.48 per share, and it plans to pay a $2.54 dividend to shareholders (assume that is one year from now). DFB will retain $1.94 per share of its earnings to reinvest in new projects that have an expected return of 15.7% per year. Suppose DFB will maintain the same dividend payout rate, retention rate, and return on new investments in the future and will not change its number of outstanding shares. Assume next dividend is due in one year. a. What growth rate of earnings would you forecast for DFB? b. If DFB's equity cost of capital is 11.8%, what price would you estimate for DFB stock today? c. Suppose instead that DFB paid a dividend of $3.54 per share at the end of this year and retained only $0.94 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesti in as many new projects. If DFB maintains this higher payout rate in the future, what stock price would you estimate for the firm now? Should DFB raise its…
NoGrowth Corporation currently pays a dividend of $1.72 per year, and it will continue to pay this dividend forever. What is the price per share if its equity cost of capital is 12% per year?

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS