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QUESTION 1 As a firm operating in a mature industry, Safee Industries is expected to maintain a constant dividend payout ratio and constant growth rate

QUESTION 1
As a firm operating in a mature industry, Safee Industries is expected to maintain a constant dividend
payout ratio and constant growth rate of earnings for the foreseeable future. Earnings were RM4.50
per share in the recently completed fiscal year. The dividend payout ratio has been a constant 55% in
recent years and is expected to remain so. Safee's return on equity (ROE) is expected to remain at 10%
in the future, and you require an 11% return on the stock.
i)
Using the constant-growth model, calculate the current-value of Safee common stock.
Show your calculations.
ii) Assuming that Safee's dividend will grow at a 15% rate for the next two years, and then
returning in the third year to the historical growth rate and continuing to grow at the
historical rate for the foreseeable future, find the value of the stock today.
(8 Marks)
QUESTION 2
Recently, Shaz Berhad paid a dividend of RM1.20 per share to its shareholders. The dividend is
expected to grow at 5% per year indefinitely. If the required rate of return on this stock is 10%,
i) Calculate the value of the stock today
ii) If the current market price is RM30, would you buy this stock?
QUESTION 3
Kuza Inc.'s net profits after tax for the current financial year is RM30 million. Its payout ratio is 40%
and its dividend grows at a constant rate of 10%. The company has 100 million common stock
outstanding. If your required rate of return is 15%, using a dividend valuation model, compute the
value of Kuza Inc. stock.
QUESTION 4
Salmah is planning to purchase a stock of a company and she expects it to pay a dividend of RM0.30
in year 1, RM0.42 in year 2 and RM0.55 in year 3. She also expects to sell the stock for RM10 in three
years. If her required rate of return for purchasing the stock is 14%, how much would she willing to
pay for the stock?
QUESTION 5
Melor Corporation's stock is currently selling at RM4.50 per share. The company recently paid a
dividend of RM0.30 per share. The dividend is expected to maintain its growth rate of 8% per year for
indefinite period. If an investor's required rate of return is 14%, should he buy this stock?
QUESTION 6
A 7-year, 7 percent coupon bond with a par value of RM1,000 will mature in another 3 years. It is
currently selling at RM1,020. The issuer expects to call back the bond after 8 years from the issued
date at RM1,110. Determine:
i) Yield to maturity (YTM)
ii) Yield to call (YTC)A monopsonist facing many suppliers of labor will employ: Multiple Choice fewer workers than a firm operating in a perfectly compe the same number of workers as a firm operating in a per more workers than a firm operating in a perfectly comp an indeterminate number of workers. Prev 32 of 80
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