Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Umi Limited Company has been in business for the last 10 years supplying stationeries to the government. For the past 5 years, the company paid

Umi Limited Company has been in business for the last 10 years supplying stationeries to the government. For the past 5 years, the company paid an annual dividend of $1.50 per share. In the recent board meeting, the directors agreed to issue additional shares to the original owners (Kerry Wate, John Aitorea and James Watepo) and raise funds to expand the business to the provinces.

Required:

  1. Kerry Wate expects the dividend rate of $1.50 per share to grow at a rate of 5% per annum indefinitely and required a rate of return of 12% on the additional investment. What is the value of each of the additional shares to Kerry Wate?
  2. John Aitorea expects the dividend rate of $1.50 per share to grow at a rate of 5% per annum for the next 2 years and increase to 8% indefinitely as the business expands to all provinces. If John expects a required rate of return of 12.5%, what is the value of each of the additional shares to John Aitorea?
  3. James Watepo holds the belief that in order for the business to expand, it must return 50% of its annual earnings and reinvested the retain earnings to earn a 20% rate of return. If James holds a required rate of return of 15%, what is the value of each of the additional shares to James Watepo?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To The Financial Management Of Healthcare Organizations

Authors: Michael Nowicki

7th Edition

156793904X, 9781567939040

More Books

Students also viewed these Finance questions