Chambers Rosewood Pty Ltd issued perpetual preference shares a few years ago. The company pays an annual dividend of $4.27, and your required rate of return is 12.2 per cent.

a.What is the value of the share given your required rate of return?

b.Should you buy this share if its current market price is $34.41? Explain.

9.28Aspen Australia Pty Ltd is a fast-growing drug company. The company forecasts that in the next 3 years, its growth rates will be 30 per cent, 28 per cent, and 24 per cent, respectively. Last week it declared a dividend of $1.67. After 3 years the company expects a more stable growth rate of 8 per cent for the next several years. Your required rate of return is 14 per cent.

a.Calculate the dividends for the next 3 years, and find its present value.

b.Calculate the price of the share at the end of year 3 when the company settles to a constant growth rate.

c.What is the current price of the share?