Reference no: EM133008363

Questions -

Q1. Morris Ltd shares are currently selling for $3.38 and the company recently paid a dividend to ordinary shareholders of 30 cents per share and has projected its future growth at a rate of 8.5% p.a. If you purchase shares in the company at the market price, what is your expected rate of return?

Q2. Given that a company's return on equity is 18% p.a. and management plans to retain 40% of earnings for investment purposes, what will the company's growth rate of future earnings be?

Q3. Gellibrand Motors Ltd paid a $3.75 dividend last year. If Gellibrand's return on equity is 24% and its retention rate is 25%, what is the value of the ordinary shares if the investors require a 20% rate of return?

Q4. Harriet's Haughtyculture paid a cash dividend of $0.95 yesterday. This dividend is expected to grow at a rate of 11% per year for 4 years. After that growth should drop to 5% and continue at 5% to "infinity." If the required rate of return on these shares is 14%, what is the current value of the firm's shares?

Q5. The ordinary shares of NCP Ltd paid a dividend of $1.32 last year and dividends are expected to grow at an 8% annual rate for an indefinite number of years.

a. If NCP's current market price is $23.50, calculate the expected rate of return.

b. If your required rate of return is 10.5% p.a., calculate the value of a share for you.

c. Should you make an investment in NCP Ltd ordinary shares? Give reasons for your answer.

Q6. Wayne Ltd's outstanding ordinary shares are currently selling in the market for $33. Dividends of $2.30 per share were paid last year, return on equity is 20%and its retention rate is 25%.

a. What is the value of the shares you, given a 15% required rate of return?

b. Should you purchase these shares? Why or why not?

Q7. Lavin Ltd's return on equity is 13% and management has plans to retain 20% of earnings for investment in the company. a. What will the company's growth rate be? b. How would the growth rate change if management (i) increased retained earnings to 35%, or (ii) decreased retention to 13%?

Q8. The dividend for Webb Construction's ordinary shares is expected to be $1.00 next year. Growth in this dividend is expected to be 9% for the following two years; then it will drop to 5% for years 4 and 5, after which it is expected to be 3% to "infinity." If the required rate of return on this firm's ordinary shares is 13%, what is the approximate current market value of the share?