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Please clearly label a blank piece of paper with Question number 4 and write your response to this question on the paper. You will have
Please clearly label a blank piece of paper with Question number 4 and write your response to this question on the paper. You will have time at the end of the exam to upload a photograph of your answer. Show all your workings when calculations are required and round off your FINAL result to TWO decimal places. Blackmores Ltd, a public listed company is considering issuing ordinary shares to raise capital. The company is expected to pay a dividend of $0.50 per share at the end of this year and the dividends will grow at a constant rate of 3% per annum forever. Blackmores has a beta of 1.3. The long-term return of || the ASX200 (i.e. the market portfolio) is 10% per annum and the market risk premium is 6% p.a. 4 of 15 a) Using CAPM, calculate the expected rate of return of Blackmores Ltd. [4 marks) b) What is the implied value of an ordinary share of Blackmore Ltd. today? [3 marks] c) If Blackmores intends to sell its ordinary shares at $8 per share, would you buy it? Briefly explain why? [2 marks] d) Blackmores Ltd is also considering to issue some preference shares. List and explain three differences that exist between a preference shareholder and an ordinary shareholder. [6 marks)
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