FIN1FOF – FUNDAMENTALS OF FINANCE SEMESTER 2, 2014 ASSESSMENT TASK 3
Assignment Question 2 (Stock Valuation)
(Submit at your tutorial class in week 7; Note: Late submission – Zero Mark) Question 1 (65 marks)
ASAM Ltd. has just developed a new solar panel device that will generate 200 percent more than any solar panel currently on the market. As a result, ASAM is expected to experience a 16% annual growth rate for the next 5 years. By the end of 5 years, ASAM’s growth rate will slow down to 6% per year indefinitely. Shareholders require a return of 12 percent on ASAM’s stock. The most recent annual dividend (D0), which was paid yesterday, was $2.00 per share.
(a) Calculate ASAM’s expected dividends for 2015, 2016, 2017, 2018 and 2019. (b) Calculate the stock price today (P0).
(c) Calculate the expected dividend yield, capital gain yield in 2015.
(d) Calculate the expected dividend yield, capital gain yield in 2020.
(e) Assume that ASAM’s annual growth will be only 13% during the next 5 years and that the ASAM’s normal growth rate will be only 5% after 5 years. Without doing calculations, what general effect would these growth-rate changes have on the price of ASAM’s stock.
Question 2 (35 marks)
PP Ltd. expects to have earnings this year of $4 per share. It plans to retain all of its earnings for the next two years. It will retain 50% of its earnings in year 3 and year 4. It will retain 20% of earnings from year 5. Each year, retained earnings will be invested in new projects with an expected return of 25% per year. Any earnings that are not retained will be paid out as dividends. Assume that all earnings growth comes from the investment of retained earnings. Cost of capital is 12%. Calculate the price of PP today.
Our customer is the center of what we do and thus we offer 100% original essays..
By ordering our essays, you are guaranteed the best quality through our qualified experts.All your information and everything that you do on our website is kept completely confidential.
Academicwritingcompany.com always strives to give you the best of its services. As a custom essay writing service, we are 100% sure of our services. That is why we ensure that our guarantee of money-back stands, alwaysRead more
The paper that you order at academicwritingcompany.com is 100% original. We ensure that regardless of the position you are, be it with urgent deadlines or hard essays, we give you a paper that is free of plagiarism. We even check our orders with the most advanced anti-plagiarism software in the industry.Read more
The Academicwritingcompany.com thrives on excellence and thus we help ensure the Customer’s total satisfaction with the completed Order.To do so, we provide a Free Revision policy as a courtesy service. To receive free revision the Academic writing Company requires that the you provide the request within Fifteen (14) days since the completion date and within a period of thirty (30) days for dissertations and research papers.Read more
With Academicwritingcompan.com, your privacy is the most important aspect. First, the academic writing company will never resell your personal information, which include credit cards, to any third party. Not even your lecturer on institution will know that you bought an essay from our academic writing company.Read more
The academic writing company writers know that following essay instructions is the most important part of academic writing. The expert writers will, therefore, work extra hard to ensure that they cooperate with all the requirements without fail. We also count on you to help us provide a better academic paper.Read more