Red Sea Shipment Limited is a shipping logistic company which carry out the transportation of petroleum from Middle East to Asia countries. Management worries about the war crisis near the Red Sea currently would cause the broken of supply chain of petroleum transport and affect the oil price in the future. The war crisis and the effect is expected to last for a few years from now. The company has just paid an ordinary dividend of $3 per share. It is expected to grow at a rate of 12% per annum in the next 4 years and then at a constant rate of 7% per annum afterwards. The required rate of return of company's shareholders is 15% On the other hand, Red Sea Shipment Limited is considering to increase the transportation capacity of petroleum by investing in buying a new oil-tanker. The total purchasing cost of the new oil-tanker is expected to be $0.27 billion. The company management would like to finance this investment by raising capital from either issuing new ordinary shares or issuing bonds the financial markets. If the management choose to issue new ordinary shares and the buying a new oil-tanker accepted now, the expected dividends per share for ordinary shares in the next few years listed below: Dividend in year 1 $0.0 Dividend in year 2 $4.0 Dividend in year 3 $4.9 Dividend in year 4 $5.6 Dividend growth rate after year 4 7% per annum If the management choose to issue new bonds and buying a new oil-tanker is accepted now, details of the bond are shown below : Face value per bond $10000.00 Coupon rate 4.8% per annum Year-to-maturity 15 years Interest paid Annually Yield-to-maturity 8% per annum Assume the shareholders' required rate of return will remain unchanged if the investment buying a new oil-tanker is accepted. Assume there is no any transaction cost in raising cap from the market. Required: (a) If Red Sea Shipment Limited does NOT consider to buy a new oil-tanker, (Show your workings and round your answers to four decimal places if necessary.) (i) determine the expected dividend from year 1 to year 4; (4 marks) (ii) determine the terminal value in year 3; and hence, (3 marks) (iii) determine the current value of one ordinary share. (3 marks) (b) If Red Sea Shipment Limited accepts to invest in buying a new oil-tanker now and raising capital by issuing new ordinary shares. (Show your workings and round your answers to four decimal places if necessary.) (i) determine the terminal value in year 4; and (3 marks) (ii) determine the current value of one ordinary share. (5 marks) (iii) how many ordinary share should be issued to finance the investment ? (2 marks) (round up to nearest integer.) (c) Based on the results in parts (a) and (b) above, explain whether Red Sea Shipment Limited should accept to invest in buying a new oil-tanker now to increase the transportation capacity of petroleum if the management has an objective of maximizing shareholders' wealth. (3 marks) If Red Sea Shipment Limited accepts to invest in buying a new oil-tanker and raising capital by issuing new bonds, (Show your workings and round your answers to four decimal places if necessary.) determine the current value of one bond. (6 marks) (i) (ii) how many units of bond should be issued to finance the investment ? (2 marks) (round up to nearest integer.) (e) The Financial Controller of Red Sea Shipment Limited has commented: "If we release the news about purchasing the new oil tanker, I believe our share price could experience a gradual increase in the coming few days." (i) Discuss three forms of Efficient Market Hypothesis. (6 marks) (ii) Comment on the above two statements about the efficiency of the stock market. relating your comments to one or more forms of the Efficient Market Hypothesis. (3 marks) (Total 40 marks)