Question
(a) Simpson Ltd paid $1.20 dividend per share yesterday and will pay the same amount of dividend in the next 3 years. After year 3,
(a) Simpson Ltd paid $1.20 dividend per share yesterday and will pay the same amount of dividend in the next 3 years. After year 3, the dividend will increase at a constant growth rate of 4% per year indefinitely. If the required rate of return of Simpson is 12%p.a., calculate the current market price of Simpson.
(b) Simpson also issues preference shares. The face value of the preference share is $10 and the dividend rate is 5%p.a. Investors require 8% return from the preference shares. If Simpson Ltd paid the last dividend yesterday, calculate the current preference share price.
(c) Describe THREE differences between preference shares and ordinary shares.
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