Question 3 - Share valuation 8 marks Allen Aeronautical Ltd anticipates growth over the next few years with the following dividends forecast for the next 4 years. After the year 4 dividend is paid, future dividends are expected to grow at a constant growth [use the last four digits of student ID*] rate. * growth rate is based on last four digits of your student ID. For example, if your student ID is 456789, then the growth rate would be 6.789%. Required: (Marks are awarded for workings, so please show all workings). A. If the required return is 12.5%, what is the current share price? (6 marks) B. Allen Aeronautical has entered into a space race and management are willing to do what it takes to win, even if it means taking huge risks and shortcuts! Management feel that if they win the race, the media attention and commercial prospects will see the share price increase. Shareholders are not so sure What type of problem could this be an example of, and what implications could it have on the goal of financial management? (2 marks)

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Question 3 - Share valuation - 8 marks Allen Aeronautical Ltd anticipates growth over the next few years with the following dividends forecast for the next 4 years. Year Expected Dividend $ 1.10 $ 2.95 $ 4.75 $ 5.25 ? 1 2 3 4 5 After the year 4 dividend is paid, future dividends are expected to grow at a constant growth [use the last four digits of student ID") rate. * growth rate is based on last four digits of your student ID. For example, if your student ID is 456789, then the growth rate would be 6.789%. Required: (Marks are awarded for workings, so please show all workings). A. If the required return is 12.5%, what is the current share price? (6 marks) B. Allen Aeronautical has entered into a space race and management are willing to do what it takes to win, even if it means taking huge risks and shortcuts! Management feel that if they win the race, the media attention and commercial prospects will see the share price increase. Shareholders are not so sure... What type of problem could this be an example of, and what implications could it have on the goal of financial management? (2 marks)