Q4.3

Question 4 West End Parcels Plc is a delivery company that is based in Glasgow. The COVID-19 pandemic has increased the demand for delivery services across the country. You have been provided with the following information about the company: Headquarters: Glasgow, United Kingdom Most recent earnings: 19 million. Most recent dividend payout: 9.5 million Number of shares outstanding: 3,000,000 Growth prospects: The company has significant growth prospects according to market observers. Firm growth rate: Firm expects earnings to grow by 5% a year forever REQUIRED: Q4.1 Calculate West End Parcel's earnings per share. Q4.2 Using an appropriate model, calculate the current share price of the company. Assume that investors demand a return of 8% on the company's shares. You should outline the key assumptions you have made. Q4.3 If the company had no expected growth in earnings or dividends, calculate the price of the shares. What is the present value of the company's growth opportunities? Q4.4 Company managers are considering a reduction in the level of dividends that are paid out to investors. Evaluate this decision and discuss whether it would be a sensible decision for the firm