Calculate how much should she pay for the share

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Question (a) Eva is considering buying a share from a company. She estimated her cost of equity to be 14 percent. Calculate how much should she pay for the share if the company promises the following:

i. Constant dividend of RM1.50 per share every year.

ii. Constant growth in dividend of 10 percent indefinitely, and last year dividend is RM1.80 per share.

Question (b) Snowflakes Sdn Bhd expects to grow at current rate of 10 percent per annum for the next 2 years and then at 8 percent per annum indefinitely thereafter. Calculate current share price of Snowflakes Sdn Bhd assuming rate of return on equity is 12 percent per annum and last year dividend is RM1.00 per share.

Question (c) Over the last 20 years Warisan Bhd have continued to grow, in terms of earnings to shareholders, by about 14 percent. This growth is expected to continue indefinitely and the current rate of return by investors is 18 percent. If the dividend to shareholders last years was RM0.95, calculate the current share price.

Reference no: EM132505368

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