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 RM$4\mathrm{.}50$

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 RM$1\mathrm{.}20$ 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 RM$30,$ would you buy this stock?

QUESTION $3$

Kuza Inc.$\text{'}$s net profits after tax for the current financial year is RM$30$ 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 RM$0\mathrm{.}30$

in year $1,$ RM$0\mathrm{.}42$ in year $2$ and RM$0\mathrm{.}55$ in year $3.$ She also expects to sell the stock for RM$10$ 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 RM$4\mathrm{.}50$ per share. The company recently paid a

dividend of RM$0\mathrm{.}30$ 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 RM$1,000$ will mature in another $3$ years. It is

currently selling at RM$1,020.$ The issuer expects to call back the bond after $8$ years from the issued

date at RM$1,110.$ Determine:

i$)$ Yield to maturity $($YTM$)$

ii$)$ Yield to call $($YTC$)$