Explain why preferred stock is similar to debt than equity, Financial Management

Assignment Help:

Question:

a. Le Mustang company Ltd is foreseeing a growth rate of 15 per cent per annum in the next three years. It is likely to fall to 12 per cent in the fourth year. After that, the growth rate is expected to stabilize at 7 per cent per annum. If the last dividend paid was Rs.10 per share and the investors required rate of return is 20 per cent, calculate the maximum price at which you will be prepared to buy the company's shares.

b. Explain why preferred stock is more similar to debt than equity ?

c. The current dividend on an equity share of Donald company Ltd is Rs3.00.Donald is expected to enjoy an above normal growth rate of 40 % for 5 years. Thereafter, the growth rate will fall and stabilize at 12 %. Equity investors require a return of 18% from Donald's stock. What is the intrinsic value of the equity share of Donald under two- stage growth model?

d. Differentiate between systematic risk and unsystematic risk and show how such distinction is important for an investor.


Related Discussions:- Explain why preferred stock is similar to debt than equity

Borrowing funds to purchase bonds, Borrowing Funds to Purchas...

Borrowing Funds to Purchase Bonds There are several sources available to borrow funds. When securities are purchased with borrowed funds then the mo

Assigenment, a choice is to be made between the two completing proposal wh...

a choice is to be made between the two completing proposal which require an equal investment of Rs.50000.00 and we are expected t gererate net cash flow as under. Year Project A

Determine cost of redeemable debt, Q. Determine Cost of redeemable Debt? ...

Q. Determine Cost of redeemable Debt? Cost of redeemable Debt: - Usually a company issues a debt which is redeemable subsequent to a certain period during its life-time. Such a

Explain the three financial factors that influence the value, List and expl...

List and explain the three financial factors that influence the value of a business. The three factors that influence the value of a firm's stock price are timing , cash flow

Discuss the pros and cons of financing in unhedged, You have the following ...

You have the following information about rates in London for Eurocurrency loans of one-year duration, the exchange rate between the USD and euros, the currency in which you want fi

Define primary advantage to a corporation of investing, What is the primary...

What is the primary advantage to a corporation of investing some of its funds in working capital? By investing in working capital a firm acquires the liquidity it requirements he

Illustrate example of company objectives, Example of Company Objectives ...

Example of Company Objectives Divide from the problem of which goal a company ought to pursue are the questions of which goals companies claim to pursue and which goals they a

#itle.., Hi'' can you tel me a how you describe what is a company las or an...

Hi'' can you tel me a how you describe what is a company las or an example. Thanks iulia

Interpretations of profitability ratio''s, Interpretations of Profitability...

Interpretations of Profitability Ratio's - ROA:       ROA or the Return on Assets ratio is the ratio of net profit to total assets and this ratio indicates whether total assets

Expert , i have Passed all three level of CFA program and i want to join y...

i have Passed all three level of CFA program and i want to join you expert team. will you please tell me will this happen

Write Your Message!

Captcha
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