Calculate the value of one share in clarence ltd

Assignment Help Accounting Basics
Reference no: EM133021572

Question - Sam has cash to invest and is considering purchasing ordinary shares in Clarence Ltd. The company just paid a dividend of $1.00 per share to its shareholders. The dividend is expected to grow at the rate of 5% per year indefinitely.

Sam's required rate of return from this investment is 20% per annum.

Shares in Clarence Ltd are current selling for $5.80.

Required -

(a) Calculate the value of one share in Clarence Ltd.

(b) Sam is very keen to buy the shares in Clarence Ltd. Would you recommend this investment? Explain why or why not.

(c) Assume Sam buys the shares for $6.00 then immediately after buying the shares the company announces a bonus issue. As a result of the bonus issue (and assuming no value relevant information is released) explain what happens to the share price and the value of Sam's investment in Clarence Ltd.

Reference no: EM133021572

Questions Cloud

Discuss the auditor responsibilities : You are the auditor of Bangholme Pty Ltd (Bangholme), a wholesaler of books. Discuss the auditor's responsibilities with respect to the above event
What would be the price of u-u : What would be the price of U&U with the same required return as in 1, if the dividend increases with 2% constant annual growth from year 4 onwards
Which one of them will be eager to pay higher price : XYZ company has an infinite horizon with a constant dividend of RM25. Which one of them will be eager to pay higher price for this company's share
Compute conversion costs : Compute conversion costs given the following data: Direct Materials, $395,700; Direct Labor, $191,900; Factory Overhead, $201,500 and Selling Expenses, $44,200
Calculate the value of one share in clarence ltd : The company just paid a dividend of $1.00 per share to its shareholders. Calculate the value of one share in Clarence Ltd
Establish the equation from which the IRR is solved : Establish the equation from which the IRR is solved. Assuming the IRR=19.53%, should FIN222 Ltd accept the project and why
How much is the face value that high tech has to pay : How much is Face Value that High Tech has to pay back to Geo Engin under various maturity dates of 60, 90 and 120 days if Geo Engin advances exactly $35 Million
Calculate the company current cost of capital : The tax rate for Teatree Co. is 30% and this Co. just reported a full year EBIT of 100million. Calculate the company current cost of capital
Compute annual end of year payments to the commercial bank : Mark Gore plans to get married and he wants to purchase a house for $1,800,000. Compute annual end of year payments to the commercial bank

Reviews

Write a Review

Accounting Basics Questions & Answers

  What is the carrying amount of the receivable

Question - On June 30, 2020, Vast Corp. granted a 5-year, What is the carrying amount of the receivable from the Vice-President on December 31, 2020

  Conduct analysis based on the benefit-to-cost ratio method

The tunnel would cost $32,000,000, with a 30-year economic service life and zero salvage value. The annual maintenance and repair would total $60,000.

  Oakmont company has an opportunity to manufacture and sell

oakmont company has an opportunity to manufacture and sell a new product for a four-year period. the companys discount

  Compute the current ratio for fiscal years

Compute the following items for Bradburn Corporation- Current ratio for fiscal years 2010 and 2011. Inventory turnover for fiscal year 2011

  Prepare a dated listing of the cash inflows and outflows

Judy sold her investment on December 30, 2015, generating a $4,000 gain on the sale of stock. Prepare a dated listing of the cash inflows and outflows

  Prepare the general journal entry for the january

The issue price was $7.50 per share. Use this information to prepare the General Journal entry (without explanation) for the January 2 entry

  What is the journal entry to record the receipt of cash

The magazines will be delivered on the 1st of each month, starting April 1. What is the journal entry to record the receipt of cash from the customer

  In conducting year-end inventory counts your audit team is

in conducting year-end inventory counts your audit team is debating the impact of the clients right of return policy

  Rand company sells fine collectible statues and has

rand company sells fine collectible statues and has implemented activity-based costing. costs in the shipping

  Develop fresh advertisements to market newest product

Planning and control decisions. Gregor Company makes and sells brooms and mops. It takes the following actions, not necessarily in the order given.

  Determine the direct labour efficiency variance

Twister Pty Ltd has set direct labour standards of 3 hours per unit and $5 per hour. During the month 2,900 hours at a total cost of $17,400 were used.

  What is the amount of the allowable capital loss

G sold 1,000 shares of Need Ltd. for $8,000 early in the current year. What is the amount of the allowable capital loss

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd