QUESTION $4$

A$.$ Discuss THREE $(3)$ types of dividend policy payment.

$(6$ marks$)$

B$.$ a$.$ Ali Bhd is a company produces furniture in Malaysia. The company usually retains

$70\%$ of its earning. It is expected that dividend growth is to be $10\%.$ The required

rate of return is $14\%.$ The estimated earnings after interest and tax for next year

is RM$40$ million. The company's current number of outstanding stock is $25$ million

units. Would you buy the stock if the stocks is currently priced at RM$15$ per share?

Explain.

$(8$ marks$)$

b$.$ Ayu Bhd paid a dividend of RM$1\mathrm{.}50$ per share recently and the dividend growth is

expected to grow at a rapid rate of $10\%$ per annum for next years. The growth rate

is then expected to be at constant rate of $10\%$ until third year, then it turns to $9\%$ in

the following year for the indefinite future. The market price of the stock is RM$40.$

The required rate of return is $12\%.$

Compute intrinsic value for Ayu's stock. Would you buy?