Question

A. The value of ordinary shares cannot be tied to the present value of future dividends because

most companies dont pay dividends. Comment on the validity, or lack thereof, of this statement.

B. Martin King is analysing the shares of MIA Radiology. MIAs equity pays a dividend once each year, and it just distributed this years $0.85 dividend. The market price of the share is $12.14. Martin estimates that MIA will increase its dividends by 7 % per year forever. After contemplating the risk of MIAs equity, Martin is willing to hold the shares only if they provide an annual expected return of at least 13 %. Should she buy MIA shares or not?