Tutorial 8
UNIVERSITI TUNKU ABDUL RAHMAN
FACULTY OF BUSINESS AND FINANCE
ACADEMIC YEAR 2015 / 2016
TUTORIAL 8
Learning Outcome:-
On completion of this unit, a student shall be able to:
Discuss the characteristic and feature of common stock and preferred stock.
Apply preferred and common stock valuation.
8-1 How does a right’s offering protect a firm’s stockholders against the dilution of ownership? 8-2 What is the purpose of a call feature in a preferred stock issued?
8-3 Over the past 5 years, the dividends of the Dave Corporation have grown from RM0.70 per share to the current level RM1.30 per share (D0). This growth rate is expected to continue for the foreseeable future. What is the value of a share of Dave Corporation common stock to an investor who requires a 20 percent return on an investment?
8-4 Terry Timex is expanding into a new geographic area. Management expects the new market to fuel growth of 22 percent for three years. After that normal growth of 6% will resume. Terry's most recent annual dividend was RM1.25. Lately, other fruit companies return is about 12 percent. How much should a share of Terry be worth?
8-5 Garden Beauty provides maintenance services for commercial buildings. Currently, the beta on its common stock is 1.08. The risk-free is now 10 percent, and the expected return on the market portfolio is 15 percent. It is January1, the company is expected to pay a RM2 per share dividend at the end of the year, and the dividends is expected to grow at a compound annual rate of 11 percent for many years to come. Based o the CAPM and other assumption you might make, what dollar value would you place on one share of this common stock?
8-6 The stock of Macbeth Cleaning Corp. is currently selling for RM 25 a share. The company is expected to pay a dividend of RM 0.75 at the end of this year. If you bought Macbeth stock today and sold it for RM 29
FACULTY OF BUSINESS AND FINANCE
ACADEMIC YEAR 2015 / 2016
TUTORIAL 8
Learning Outcome:-
On completion of this unit, a student shall be able to:
Discuss the characteristic and feature of common stock and preferred stock.
Apply preferred and common stock valuation.
8-1 How does a right’s offering protect a firm’s stockholders against the dilution of ownership? 8-2 What is the purpose of a call feature in a preferred stock issued?
8-3 Over the past 5 years, the dividends of the Dave Corporation have grown from RM0.70 per share to the current level RM1.30 per share (D0). This growth rate is expected to continue for the foreseeable future. What is the value of a share of Dave Corporation common stock to an investor who requires a 20 percent return on an investment?
8-4 Terry Timex is expanding into a new geographic area. Management expects the new market to fuel growth of 22 percent for three years. After that normal growth of 6% will resume. Terry's most recent annual dividend was RM1.25. Lately, other fruit companies return is about 12 percent. How much should a share of Terry be worth?
8-5 Garden Beauty provides maintenance services for commercial buildings. Currently, the beta on its common stock is 1.08. The risk-free is now 10 percent, and the expected return on the market portfolio is 15 percent. It is January1, the company is expected to pay a RM2 per share dividend at the end of the year, and the dividends is expected to grow at a compound annual rate of 11 percent for many years to come. Based o the CAPM and other assumption you might make, what dollar value would you place on one share of this common stock?
8-6 The stock of Macbeth Cleaning Corp. is currently selling for RM 25 a share. The company is expected to pay a dividend of RM 0.75 at the end of this year. If you bought Macbeth stock today and sold it for RM 29