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- January 7, 2023 at 9:02 am #675463
Q4.a. Hawkins News Ltd. Has been growing at a rate of 20%, and you expect this growth rate
in earnings and dividends to continue for another three years.
i. If the last dividend paid was $2, what will the next dividend be?
ii. If the discount rate is 15% and the steady growth rate after three years is 4%, what
should the stock price be today?
iii. What is your prediction for the stock price in one year?
iv. Show that the expected return equals the discount rate?Q4.b. Warwick Plc. Is considering a project that will result in initial after-tax cash savings of
$2.9 million at the end of the first year, and these savings will grow at a rate of 2% per year
indefinitely. The firm has a targeted debt-to-equity ratio of 0.75; a cost of equity of 10%; and
after-tax cost of debt of 4.6%. The cost-saving proposal is somewhat riskier than the usual
project the firm undertakes. Therefore, management uses the subjective approach and applies
an adjustment factor of +3% for the cost of capital for such risky projects. Under what
circumstances should Warwick Plc. take on the project?January 7, 2023 at 4:42 pm #675470Why are you attempting questions for which you do not have answers? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and explanations.
Neither of these questions are examinable in Paper PM. They are examinable in Paper FM and my free lectures cover the techniques needed in full.
The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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