N1533 Theory of Investments QUESTION 9. a) AVALA plc is all equity financed. The total market value of the firm currently is 100,000, and there are 2,000 shares outstanding 0 The firm has declared a 5 per share dividend. The stock will go ex- dividend tomorrow. At what price will the stock sell today? Ignore taxes Hlustrate your answer by appropriate diagram showing changes of the stock price m) Now assume that the tax rate on dividend income is 30%, and the tax rate on capital gain is zero. At what price will the stock sell today? [4.3 marks) Capital Structure of SAVA plc is: (million) Ordinary Shares of 20p nominal value 12 10% Perpetual (irredeemable) bonds 8 20 b) The ordinary shares have a market price of 24p. Dividends paid in the last five years have been (starting from earliest): 2p 2.1p, 2.2p: 2.31p and 2.43p. respectively Dividends are paid once a year and the latest dividend, 2.43p has just been paid. The bonds have a market price of 120 per 100 face value Interest is paid once a year. There is no corporate tax Calculate the cost of ordinary shares and irredeemable bonds in SAVA plc. Stale clearly any assumptions you made [4 marks N1533 Theory of Investments QUESTION 9. a) AVALA plc is all equity financed. The total market value of the firm currently is 100,000, and there are 2,000 shares outstanding 0 The firm has declared a 5 per share dividend. The stock will go ex- dividend tomorrow. At what price will the stock sell today? Ignore taxes Hlustrate your answer by appropriate diagram showing changes of the stock price m) Now assume that the tax rate on dividend income is 30%, and the tax rate on capital gain is zero. At what price will the stock sell today? [4.3 marks) Capital Structure of SAVA plc is: (million) Ordinary Shares of 20p nominal value 12 10% Perpetual (irredeemable) bonds 8 20 b) The ordinary shares have a market price of 24p. Dividends paid in the last five years have been (starting from earliest): 2p 2.1p, 2.2p: 2.31p and 2.43p. respectively Dividends are paid once a year and the latest dividend, 2.43p has just been paid. The bonds have a market price of 120 per 100 face value Interest is paid once a year. There is no corporate tax Calculate the cost of ordinary shares and irredeemable bonds in SAVA plc. Stale clearly any assumptions you made [4 marks