Question One

ATEC Ltd is a player in the local market. The company's common stock is trading at sh 65 per

share. The company's most recent is sh 3 per share. The required rate of return on investments of

similar risk is 10%. In order to advise investors, you need to estimate the value of the share under

the following scenarios;

i.

If dividends are expected to grow at zero per cent indefinitely

(1 Mark)

ii.

If dividends are expected to grow at 2% indefinitely

(1 Mark)

iii.

If dividends are expected to grow at 2% for the first 5 years, then the growth rate increase

to 5% indefinitely.

(5 Marks)

iv.

What would you advise an investor who owns these shares, under the third (iii) scenario