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Question one Compare and contrast capital market and money market ( 2 marks) Company Z is experiencing a period of rapid growth. The earnings and
Question one
- Compare and contrast capital market and money market ( 2 marks)
- Company Z is experiencing a period of rapid growth. The earnings and dividends are expected to grow at a rate of 18% during the next 2 years at 15% in the third year and then at constant rate of 6% thereafter. Dividend payment in year 3 is expected to be K1.15 per share and the required rate of return on the stock is 12%.
- Calculate last dividend payment (current dividend) (2 marks)
- Calculate the value of the stock today. (8 marks)
- ABZ Corporation is considering the purchase of a copier that costs $5,000. Assume a cost of capital of 10% and the following cash flow schedule:
- Year 1: K3,000
- Year 2: K2,000
- Year 3: K2,000
- Determine the project's Payback Period (1 Mark)
- Determine the project's NPV (4 Marks)
- Determine the project's PI (3 Marks)
- Discuss the following
- What are the differences between premium bonds and discount bonds (3marks)
- Discuss three limitations of capital asset pricing model (CAPM) (6 marks)
- Differential between cost of capital and capital structure (4 marks)
- Explain the internal sources of finance the manager should use when encountered with the unfavourable payment period (6 marks)
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