Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ms. Sucheta is planning to make an investment in the equity shares of companies and thinking of seriously considering any one of the following three

Ms. Sucheta is planning to make an investment in the equity shares of companies and thinking of seriously considering any one of the following three companies and gathered the related information about the same. Apparently all the three companies have declared a dividend of Rs. 10 per share for the current year. The dividends of EGK Ltd. are expected to grow at rate of 9.4% for ever. Whare as the dividends of ISV Ltd. are expected to grow at rate of 10% for the next 8 years and stabilise at 6% forever thereafter. GSD Limiteds dividends are expected to grow at a rate of 10% for the first four years, at a rate of 8% for the next four years and a rate of 6% forever thereafter. The 10-year GoI bonds are offering a rate of 5%. The returns of the market portfolio are expected to be 10%. The beta of all the three companies is 1.4. Answer the following questions (5 marks each) 1. What should be the risk adjusted required rate for Ms. Sucheta? 2. What would be the intrinsic values of the equity shares to Ms. Sucheta? 3. If all the three shares are quoted in the market at a) Rs. 420, b) Rs. 425, c) Rs. 430 and d) Rs. 435, what should be her course of action?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Inside Private Equity

Authors: James M. Kocis, James C. Bachman IV, Austin M. Long III, Craig J. Nickels

1st Edition

0470421894, 978-0470421895

More Books

Students also viewed these Finance questions

Question

Critique why humans fall prey to perceptual illusions.

Answered: 1 week ago