Question 2-4

Solution 1

Calculating growth rate

Growth rate = ROE * (1-P)

Where P= DPS/ EPS

G= 15%*(1- 0.31/0.52)

G= 15* 0.2/0.52

G = 6.05%

Growth rate =6.05%

Calculating share price

Price of stock = Dividend / (required rate of return growth rate)

Share price = price of stock / no of total shares

Where

Dividend = 31200*2 = 64200

required rate of return = 12% given

growth rate = 6.05% (calculated above)

no of total shares = 100000*2 = 200000

price of stock = (62400/ 12-6.05) / 200000

= 1112188.24/200000

Share price = 5.56

And please list more details about Question 4, THE STEPS to increase share price.

QUESTION 1: EQUITY VALUATION (30 MARKS) Silverline Electricals Limited was founded ten years ago by Jim and Wendy Birt. The company manufactures and installs both traditional and contemporary models of lights for residential and commercial purposes. Silverline Electricals Ltd has experienced rapid growth because of the new technology that increases the energy efficiency of its systems and the introduction of new models of LED integrated lights. The company is equally owned by Jim and Wendy holding 100,000 shares each. In August 2018, Jim and Wendy have decided to value their holdings in the company for financial planning purposes. To accomplish this, they have gathered the following information about their main competitors in the industry EPS (S) DPS (S) Share Price ($) | ROE (96) | Required rate (%) Colonial Lightin Reliable Full Industry Average 0.42 0.46 0.24 0.36 0.08 0.26 0.27 0.27 10.5 11.5 12.5 11.0 9.5 10.5 11.5 10.5 7.65 Plus t Electricals 24.3 8.24 Last year, Silverline Electricals Ltd had an EPS of $0.52 and paid dividends to Jim and Wendy of $31,200 each. The company also had a return on equity of 15%. Jim and wendy believe a required rate of return of 12% for the company is appropriate