Indicate which of the following sources of funds can be used as
additional sources of equity capital for a company:
| bank loan |
| dividend reinvestment |
| bond issue |
| private placement |
| rights issue |
2 of 5ID:FMTH.E.DG.02.LAgility Client Ltd is a recently listed company. The shareholders in this company have just received a dividend payment and they have been told that their next dividend payment will be $2.46. Investors expect this dividend to grow at constant rate of 2% pa thereafter. Assume that the required return for the investor is 11% pa.
a)Calculate the value of the company's share immediately after the dividend payment. Give your answer in dollars and cents to the nearest cent.
Value of share = $
Immediately after the dividends were paid, Agility Client Ltd suddenly lost a key competitor who was involved in a huge corporate scandal. Investors believe that the resultant increase in market share will make the dividends grow faster than they initially predicted. They predict that the dividend growth will be increased to a constant rate of 6%.
b)Assuming the required return is the same as previously, calculate the increase in the value of the share caused by losing their key competitor. Give your answer in dollars and cents to the nearest cent.
Increase in value of share = $
3 of 5ID:FMTH.E.DG.01A.LYour client Mr Smith has asked you to look into one of his favourite stocks, Perforated Owl Distributors (POD). He received the following press release for you to consider:
Perforated Owl Distributions
112 Canary Pde
Deagenville
Press Release - 31 December 20132013 was a strong year for Perforated Owl Distributions! As such we have just increased our dividend from $0.38 last year to $0.41 which investors will receive today. We expect our dividends to grow at this rate each year from now on. Our cost of equity in 2013 was 14.4%. Based on this information, calculate the share price of POD after today's dividend has been paid. Give your answer in dollars and cents to the nearest cent.
Share price = $
4 of 5What are the advantages of listing on a stock exchange?
| The company can be independently valued. |
| The company can more easily raise additional equity capital. |
| The company can more easily access debt capital. |
| The company has lower reporting requirements because it does not need to tell a business angel what it is doing. |
| Investors are offered liquidity and maturity transformation. |
5 of 5ID:FMTH.E.SP.02.LAn investor buys 7,500 shares in a company. If each share can be expected to pay $1.10 every half-year
forever, and the investor wants to earn a rate of 13.6% pa compounded half-yearly on their investment, calculate the price (P) that should be paid for the
parcel of shares. Give your answer in dollars and cents to the nearest cent.
P = $