Question 5. (20 marks)

Below cases a and b are two independent cases, answer both the parts.

a) Best brothers Ltd just paid a dividend of $0.60. It is expected that its dividend will increase by 2% per year. If the market requires a return of 15% on assets of this risk, how much should the share be selling for? Or in other words what is the share price ?

b) Suppose Richard Ltd is expected to pay a $2 dividend in 1 year. If the dividend is expected to grow at 7% per year and the required return is 20%, what is the price?