Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. question 3 the recent trade war has hit the orange

Question 3 The recent trade war has hit the Orange Company severely. Management announced that...

90.2K

Verified Solution

Question

Finance

Question 3

The recent trade war has hit the Orange Company severely. Management announced that previous plans to expand its operations would be cancelled. Orange just paid a dividend of $2.50 but announced that next years dividend would be cut to $2 per share, and only grow at a rate of 2% per year forever. The market price of the stock was $20 before the announcement. The stocks expected return is 15%.

(a)Calculate the price of the stock after the announcement based on the constant dividend growth model. (4 marks)

(b)Explain one (1) limitation of the constant dividend growth model.(3 marks)

(c)Briefly discuss two (2) reasons each for an investor to prefer to invest in the convertible bonds of a company over the companys: (i)Preferred shares(ii)Ordinary shares (8 marks)

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

Solve for the missing variable as indicated Round angles to the nearest whole number Round...

Geometry
Q

In general, can a polynomial function of degree 3 have any absolute extrema? Why? NOTE- In details...

Basic Math
Q

How can a large amount of biological diversity protect an ecosystem from environmental damage? Why are...

Biology
Q

Mention some ways or examples to increase Heat Transfer in an internal flow?

Mechanical Engineering
Q

View In English A car blowing a horn of frequency 350 Hz is moving normally...

Physics
Q

A carnival purchases 2300 stuffed animals to give away as prizes If the total cost...

Algebra
Q

11 Let W be the subspace of R spanned by the vectors v 0 1...

Algebra
Q

Briefly describe an organization with which you are familiar. Describe a situation when a manager...

Accounting
Q

33. What are the audit procedures used to verify the accuracy of payroll transactions?

Accounting
Q

In order to accurately calculate an employee's pay, it is important that payroll clearly understands...

Accounting
Q

Flint Steel Corporation has a precredit U.S. tax of $188,000 on $518,000 of taxable income...

Accounting
Q

Company BCD's cashflows are given: We assume the cashflows will grow at the rate of...

Finance