Managerial finance

Question 1: The IMG Entertainment Group has been witnessing good sales in the last few quarters of its operations. The firm's upper management seriously believes that shareholders should be rewarded. As a result, the firm is expected to increase dividends by 10% in one year and by another 12% in two years, and by another 15% in three years. After that, dividends will increase at a rate of 5% per year indefinitely. (a) If the last dividend paid was $20 and the required return is 40%, how much IMG would be worth today using the Dividend Discount Model? [6 marks] (b) Evaluate the impact on the firm's value if the management decided to change the dividend growth rate in year 4 to 10% indefinitely. [4 marks] (c) Recommend 3 alternative financial tools which a shareholder might apply when deciding whether or not to buy an ordinary share. [3 marks] (d) What are some of the limitations of the Dividend Discount Model? Explain your answer. [2 marks]