Question
a) Distinguish the differences between stock splits and stock dividends. (8 marks) b) Recent dividend distributed RM1. Suppose a firm is expected to increase dividends
a) Distinguish the differences between stock splits and stock dividends. (8 marks)
b) Recent dividend distributed RM1. Suppose a firm is expected to increase dividends by 20% in one year and by 15% in two years. After that, dividends will increase at a rate of 5% per year indefinitely. If the required return is 20%, calculate the stock. (8 marks)
c) Capital Bhd. just paid a dividend of RM2.00 per share on its stock. The dividends are expected to grow at a constant 6 percent per year indefinitely. If investors require a 13 percent return on Capital stock,
calculate;
i) The current stock price (3 marks)
ii) The stock price in 3 years (3 marks)
iii) The stock price in 15 years (3 marks
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