Question 3 (20 Marks)

1. You expect the price of MU Corporation stock to be $45 in 5 years. You also expect dividends to increase at an annual rate of 10 percent from the most recent dividend of $1.00. If your required rate of return is 15 percent, how much are you willing to pay for Mu Corp's stock?

[9 marks]

2. Back in 2019, First Food Distribution Sdn Bhd, a Malaysian company, had an inventory in Singapore worth SGD1.5 million. The exchange rate of SGD/MYR at the time was 1 Malaysian Ringgit for 0.3023 Singaporean dollars. The inventory is still in Singapore and is worth the same amount in Singaporean dollars. Today the exchange rate is 1 Malaysian Ringgit for 0.3275 Singaporean dollars. What is First Food Distribution's inventory gain or loss in home currency due to FX fluctuations?

[5 marks]

3. Identify and briefly discuss three consequences of exchange rate risks.

[6 marks]