(Total marks: 13) International Canadian Products Ltd (ICPL) plans on paying its first quarterly dividend of 50 cents in three months. ICPL expects the dividends to grow at 8% per year compounded quarterly until the 63rd month dividend payment. After that the dividends are expected to grow at a rate of 1.5% effective quarterly forever. ICPL's equity cost of capital is 12% (EAR). a) What is the appropriate rate to be used to find the PV of ICPL's share? (2 marks) b) What is the appropriate growth rate to be used for the annuity portion of the problem? (2 marks) c) Ignore your answers in part (a) and (b) above and assume the discount rate to be used is 3% and the growth rate to be used is 1.75%. Find the PV, today, of the growing annuity portion of the problem which has the last payment on the 63rd month. (3 marks) d) Calculate the cash amount for the 1st dividend of the growing perpetuity portion of the problem using the assumed rates shown in part (c) above (3 marks) e) Ignore the answer above in (d) and assume that the cash flow for month 66, which is the first dividend of the growing perpetuity, is $1.50. Find the PV, today, of the growing perpetuity portion of the problem, use the same discount rate that is used for part (c) above. (2 marks) f) Assume your answer to part c is $10 and your answer to parte is $50, what is the price today of ICPL's share of stock? (1 mark) (Total marks: 13) International Canadian Products Ltd (ICPL) plans on paying its first quarterly dividend of 50 cents in three months. ICPL expects the dividends to grow at 8% per year compounded quarterly until the 63rd month dividend payment. After that the dividends are expected to grow at a rate of 1.5% effective quarterly forever. ICPL's equity cost of capital is 12% (EAR). a) What is the appropriate rate to be used to find the PV of ICPL's share? (2 marks) b) What is the appropriate growth rate to be used for the annuity portion of the problem? (2 marks) c) Ignore your answers in part (a) and (b) above and assume the discount rate to be used is 3% and the growth rate to be used is 1.75%. Find the PV, today, of the growing annuity portion of the problem which has the last payment on the 63rd month. (3 marks) d) Calculate the cash amount for the 1st dividend of the growing perpetuity portion of the problem using the assumed rates shown in part (c) above (3 marks) e) Ignore the answer above in (d) and assume that the cash flow for month 66, which is the first dividend of the growing perpetuity, is $1.50. Find the PV, today, of the growing perpetuity portion of the problem, use the same discount rate that is used for part (c) above. (2 marks) f) Assume your answer to part c is $10 and your answer to parte is $50, what is the price today of ICPL's share of stock? (1 mark)
