Never Say Die Ltd has been growing at a phenomenal rate of 20% per year because of its rapid extension and explosive sales. Analysts believe that this growth rate will last for three years and then drop to 5% per annum. If the growth rate then remains at 5% indefinitely, what is the value of Never Say Die Ltd shares? If the dividend paid last year per share was GH₵ 12 and the cost of capital is 15%.
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
- Never Say Die Ltd has been growing at a phenomenal rate of 20% per year because of its rapid extension and explosive sales. Analysts believe that this growth rate will last for three years and then drop to 5% per annum. If the growth rate then remains at 5% indefinitely, what is the value of Never Say Die Ltd shares? If the dividend paid last year per share was GH₵ 12 and the cost of capital is 15%.
Pure Juice Ltd sold bonds to the public five years ago to finance its operation. The bond was recently quoted at 89% of face value. The bond has a total face value of GH₵ 8.5 million and it’s currently priced to yield 9%. Pure Juice Ltd shares currently sell for GH₵ 14 per share. Fifty-three (53%) of Pure Juice Ltd 3.2 million shares are outstanding. To raise additional capital, Pure Juice Ltd issued 500
i. Calculate Pure Juice Ltd Weighted Average Cost of Capital
ii. Assume that no information is provided on risk-free rate, beta and expected
market returns. Instead, you are told that Pure Juice Ltd Ltd paid a dividend of GH₵ 4 per share last year and will grow steadily at 6% per year into the future. The stock currently sells for GH₵ 60 a share. Calculate Pure Juice Ltd’s Weighted Average Cost of Capital
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