ASSSIGNMENT FOUR (a) You have 10% holdings in a company which is expected to grow at 20% for the next four (4) years, then 10% for another three years and finally settle down to a growth of 5% for the...

ASSSIGNMENT FOUR


(a)
You have 10% holdings in a company which is expected to grow at 20% for the next four (4) years, then 10% for another three years and finally settle down to a growth of 5% for the indefinite future.
The company currently pays dividend of GHC50 per share and this is expected to grow in line with the growth of the firm. You require 10% return on your investments.

          Required:

          What value would you place on one share?

(b)  i) You are considering the purchase of Cita Company shares. You anticipate that the company would pay dividend GH¢200 per share next year and GH¢225 per share the following year. You believe that you can sell the shares for GH¢1,750 per share two years from now. Your required rate of return is 12%, what is the maximum price that you will be willing to pay for a share of Cita Company.

      ii) You purchased one equity share of Atongo Enterprise for GH¢500 today. If the share pays dividend of GH¢25 in one year, and sells at GH¢550 at that time, what would the dividend yield, capital gains % and the total rate of return be for the year?