i want the solution of these two questions ... book

Investment related question..

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MBA Morning 6th Semester Assignment No.2 Valuation Models Q1. Gordon Model Given the Gordon constant rate of growth of dividends model: D P0 Where bi D 1 1 rg E1 1 b r ib is the retention ratio is the rate of return on new investment undertaken by the firm the dividend per share expected in period one E1 the earnings per share expected in period one a) What will be the value of a share if the next dividend is expected to be 40p, the dividends are expected to grow at 6 per cent per annum, and the shareholders' required rate of return is 10 per cent. b) If the company retains 60 per cent of earnings what rate of return on the investment financed by retentions is necessary to produce an expected rate of growth of 6 per cent? c) Determine the price for the share that can be expected at the end of the first year, and the capital gain yield that this implies. d) Assuming that the rate of return on the company's investments remains unchanged, what will be the effect on the expected rate of growth and share price, if the proportion of earnings paid out as dividend is increased to 50 per cent? Explain the implications of your results. e) If the company decides to eliminate its investment programme and payout all of its earnings as dividends in the future determine the price of the company's shares. Comment on the implications of your results f) Consider the implications for the share price if the company continues to pay out 40 per cent of its earnings in the form of dividend but is expected to invest its retained earnings to produce a rate of return of 15 per cent. g) Next consider the implications for the share price if retentions remain at 60 per cent, but the average rate of return on the new investment each year into the future, is expected to be 8 per cent. h) The value of a share depends on the dividends that the company is expected to pay its shareholders. Can a company increase the value of its shares by increasing the proportion of its earnings paid out as dividends? Q2.Variable growth model: Zenith Electronics has achieved rapid rate of growth in recent years and is expected to grow at an above average rate of return for another three years or so. The firms growth has been financed entirely by retentions- dividends has been limited to 10 percent of earnings for the last 5 years. Earnings next year are expected to be $5 million and it is anticipated that the firm will continue with its established dividend policy for the next three years. During this period and average rate of return of 20 percent is expected on the firm's capital investment program. From the fourth year onwards the firm plans to reduce its level of investments as competition in its product markets is expected to intensify. Investments will be limited to 20 percent of earnings and a rate of return of 10 percent, the minimal return acceptable to shareholders, is anticipated. a. What is the firm's current rate of growth? b. What will the firm's earnings be in year 4? c. Provide an estimate of the current value of the firm