ABC Ltd, just paid $2 dividend on its ordinary shares. These dividends are expected to...
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ABC Ltd, just paid $2 dividend on its ordinary shares. These dividends are expected to grow at the rate of 5% per annum for the next 3 years after that the growth rate in dividends will drop to 3% per annum for the following 4 years then the growth rate in dividends (From year 7) will increase to 6% per annum in perpetuity. The required rate of return is 9% per annum annually. Answer the following questions. Show your calculation step-by-step and use 2 decimal places in your calculations. a. Find the current value of ABC ordinary shares. (2 marks) b. Find the value of ABC ordinary shares in years 1, 2, 3 and 7. (2 marks) c. Find the value of ABC ordinary shares in years 15, 20 and 25. (2 marks) d. Find the dividend yield and capital gain yield on ABC ordinary shares. (2 marks) e. What is the total return on ABC ordinary shares? Show if the total return on ABC ordinary shares is equal to the required rate of return. (2 marks)
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