1. KI just announced that it will cut its dividend from 3.00 to 2.50 per share and use the extra funds to expand its operations. KIs dividends were expected to grow at a 2% rate, and its share price was 37.50. With the new expansion, KIs dividends are expected to grow at a 7.5% rate.

Compute KIs share price following this announcement.

2. A project has an investment cost of CF50m and is expected to produce risky cash flows perpetually and which will, on average, be CF15m per annum but fluctuate with a volatility of 30% per annum. The stock market is expected to have a return of 15% per annum and is likely to experience volatility of 20% per annum. The correlation between the projects cash flows and the markets returns is 0.5. The central banks treasury bond yield is 300 basis points.

Evaluate the NPV of the project.

3. Compare and contrast valuation models based on discounted cash flows and valuation approaches based on the relevant multiples of comparable investments.

21 AaBbCcD AaBbCcDdEe AaBbCcDdEe AaBbcc Heading 1 Normal No Spacing Heading QUESTION FOUR a) KI just announced that it will cut its dividend from 3.00 to 2.50 per share and use the extra funds to expand its operations. KI's dividends were expected to grow at a 2% rate, and its share price was 37.50. With the new expansion, KI's dividends are expected to grow at a 7.5% rate. Compute KI's share price following this announcement. (15 marks) b) A project has an investment cost of CF50m and is expected to produce risky cash flows perpetually and which will, on average, be CF15m per annum but fluctuate with a volatility of 30% per annum. The stock market is expected to have a return of 15% per annum and is likely to experience volatility of 20% per annum. The correlation between the project's cash flows and the market's returns is 0.5. The central bank's treasury bond yield is 300 basis points. Evaluate the NPV of the project. (25 marks) c) Compare and contrast valuation models based on discounted cash flows and valuation I approaches based on the relevant multiples of comparable investments. (10 marks) TOTAL: 50 MARKS]