Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 3 Company 3's shares are traded on the London Stock Exchange. It is now 1 January 2023, and the company has just paid a

image text in transcribed
Question 3 Company 3's shares are traded on the London Stock Exchange. It is now 1 January 2023, and the company has just paid a dividend of 0.45 for 2022 . The recent dividend has been Company 3 has also in issue loan notes which will be redeemed in 7 years' time at the face value of 100. It pays a coupon interest of 6%. The company has a cost of equity of 10% and a before-tax cost of debt of 4%. It pays taxes at 25%. Required (a) Using the Dividend Growth Model, estimate the share price for Company 3. (5 marks) (b) What is the value of each 100 loan note? (8 marks) (c) Suppose you have noted that the most recent share price of Company 3 does not agree with the estimation in (a). Explain what may have accounted for that discrepancy. (6 marks) (d) Suppose Company 3 normally pays out 50% of earnings as dividend. Explain how you would use a PE ratio to determine the company's share price. (6 marks) Total 25 marks

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Energy Management Conservation And Audits

Authors: Anil Kumar, Om Prakash, Prashant Singh Chauhan, Samsher Gautam

1st Edition

0367494930, 978-0367494933

More Books

Students also viewed these Accounting questions