QUESTION FIVE (15 MARKS)

1. An analyst is reviewing the valuation of ALUW as of the beginning of October 2018 when ALUW is selling for GHc50. In the previous year, ALUW paid a GHc 1.48 dividend that the analyst expects to grow at a rate of 10 percent annually for the next four years at the end of the year 4, the analyst expects the dividend to equal 40% of earnings per share and the trailing P/E for ALUW to be 14. If the required return on ALUW common stock is 10.5%:

Calculate the per-share value of ALUWS common stock. (9 Marks)

2. There is a conflict of interest between stockholders and managers. In theory, stockholders are expected to exercise control over managers through the annual meeting or the board of directors. In practice, why might these disciplinary mechanisms not work? (3 Marks)
3. Stockholders can transfer wealth from bondholders through a variety of actions. List and explain three (3) key actions that stockholders can take to transfer wealth from bondholders. (3 Marks)