Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Information Regarding Investment in Share of Three Companies: 1. Company A has issued shares at a par value of Rs. 10, the company has paid
Information Regarding Investment in Share of Three Companies: 1. Company A has issued shares at a par value of Rs. 10, the company has paid a dividend of Rs. 3 per share last year which is expected to continue indefinitely. Currently, the shares are selling at Rs. 15 per share and required rate of return for such investment is 15% 2. Company B has issued shares at a par value of Rs. 45. The company has currently paid a dividend of Rs. 8.5 per share which is expected to grow at a rate of 10% for next 3 years and after that it is expected that growth rate will decline to 6% for indefinite period. Currently, the shares are selling at Rs. 98 per share and required rate of return for such investment is 16% 3. Company C has issued shares at a par value of Rs. 20, the company has paid a dividend of Rs. 2 per share last year which is expected to grow at a rate of 10% a year for indefinite future. Currently, the shares are selling at Rs. 32.5 per share and required rate of return for such investment is 18% Required: a) Identify dividend policy used by each company. 3 marks b) Calculate intrinsic value of each share. 19 marks c) Analyze whether each share is undervalued or overvalued. 3 marks NOTE: Calculations are mandatory in each part
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started