19:

Shares in Hooper & Associates are currently trading with a P/E of 8.3.

a)Under an earnings capitalisation model, what is the implied cost of equity capital?

b)Using your answer from part a, calculate the price using the dividend discount model if the current dividend is $0.50 per share and growth is expected at 5% per annum.

c)Return to the earnings capitalisation model in part a and estimate price assuming that Hooper adopts a policy of full payout of earnings that currently equate to a dividend of $0.50 per share.

d)Compare your answers to parts b and c. Why are they different? Can you reconcile the results?

e)What realistic range is the present value of growth opportunities likely to fall in?

20:

XYZ Ltd has a current share price of $4.89 and is paying dividends of $0.66 per share. If the assumptions underlying the earnings capitalisation model hold, what is the value of XYZ's P/E multiplier?

21:

Assuming that the dividend discount model holds, the price of one share in ABC Ltd is $18.76. If the current dividend is $0.80 per share and the cost of equity capital is 10% per annum, what is the implied growth rate?