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Calculate the value of both securities

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Question: SCT Bhd is considering two investments: preference share and ordinary share. The preference share (RM100 par value) is selling for RM95 and pays an annual dividend of RM12.50. The company's required rate of return is 14% for preference share and 20% for the ordinary share. The ordinary share which is under consideration paid a RM4 dividend.

The firm's earnings per share have increased from RM3 to RM9 in 12 years, which also reflects the expected growth in dividends per share for the indefinite future. The share is currently trading at RM40 in the market.

Required: Calculate the value of both securities based on the company's required rate of return and provide your recommendation for these securities.

Reference no: EM132749013

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