Question
2. Tauranga Railway Ltd has a new issue of preference shares it calls 20/20 preference shares. A preference share will pay a $20 dividend per
2. Tauranga Railway Ltd has a new issue of preference shares it calls 20/20 preference shares. A preference share will pay a $20 dividend per year, but the first dividend will not be paid for 20 years from today. If you require a return of 7.3% on this preference share, how much should you pay today?
3. Waipori Fresh Water will pay a dividend of $2.64 next year. The company has stated that it will maintain a constant growth rate of 4.5% a year forever. If you want a return of 12%, how much will you pay for one Waipori share? What if you want a return of 8%? What does this tell you about the relationship between the required return and the share price?
4. The Wellington Beef Company has earnings of $3.68 per share. The benchmark PE for the company is 18. What share price would you consider appropriate for Wellington? What if the benchmark PE were 21?
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