chemicals, and also manufactures fertilizers and food additives. Gupta has concluded that the DDM is appropriate to value Tata Chemicals. During the last five years (fiscal year ending 31 March 2004 to fiscal year ending 31 March 2008), the company has paid dividends per share of Rs. 5.50, 6.50, 7.00, 8.00, and 9.00, respectively. These dividends suggest an average annual growth rate in DPS of just above 13 percent. Gupta has decided to use a three-stage DDM with a linearly declining growth rate in Stage 2. He considers Tata Chemicals to be an average growth company, and estimates Stage 1 (the growth stage) to be 6 years and Stage 2 (the transition stage) to be 10 years. He estimates the growth rate to be 14 percent in Stage 1 and 10 percent in Stage 3. Gupta has estimated the required return on equity for Tata Chemicals to be 16 percent. Estimate the current value of the stock using the H-model. (Do not round intermediate computations. Round your final answer to two decimal places and do not include a currency symbol. For example, if your answer is Rs89.1245, enter 89.12)

chemicals, and also manufactures fertilizers and food additives. Gupta has concluded that the DDM is appropriate to value Tata Chemicals. During the last five years (fiscal year ending 31 March 2004 to fiscal year ending 31 March 2008), the company has paid dividends per share of Rs. 5.50, 6.50, 7.00, 8.00, and 9.00, respectively. These dividends suggest an average annual growth rate in DPS of just above 13 percent. Gupta has decided to use a three-stage DDM with a linearly declining growth rate in Stage 2. He considers Tata Chemicals to be an average growth company, and estimates Stage 1 (the growth stage) to be 6 years and Stage 2 (the transition stage) to be 10 years. He estimates the growth rate to be 14 percent in Stage 1 and 10 percent in Stage 3. Gupta has estimated the required return on equity for Tata Chemicals to be 16 percent. Estimate the current value of the stock using the H-model. (Do not round intermediate computations. Round your final answer to two decimal places and do not include a currency symbol. For example, if your answer is Rs89.1245, enter 89.12)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Hamalya Ltd. an all equity financed business, has just paid a dividend amounting to Rs. 80 million. This amount has been paid on a regular basis for many years, and the market expects to continue it. The business has 10 million ordinary shares currently quoted at Rs. 50 each. The directors have identified the opportunity to invest Rs. 60 million in one year’s time and a similar amount in two years’ time, in a project that will generate an annual cash flow of Rs. 24 million for ever, starting in three years’ time. The only possible way of financing this investment is by paying a reduced dividend for the next two years. Required: If the directors were to announce their intention to make this investment and to publish full details of it and the financing method, what would happen to the share price?
The president of Maluwana Pvt made this statement in the company’s annual report: Maluwana’s primary goal is to increase the value of the common stockholders’ equity over time.” Later on in the report, the following announcements were made:a) The company contributed K3.7million to the symphony orchestra in Chelstone, Lusaka its headquarters city.b) The company is spending K750 million to open a new plant in Tanzania. No revenues will be produced by the plant for 5 years, so earnings will be depressed during this period versus what they would have been had the decision not been made to open the new plant.c) The company is increasing its relative use of debt. Whereas assets were formerly financed with 35 percent debt and 65 percent equity, henceforth the financing mix will be 50-50.d) The company uses a great deal of electricity in its manufacturing operations, and it generates most of this power itself. Plans are to utilize nuclear fuel rather than coal to produce electricity in the…
A closely- held plastic manufacturing company has been following a dividend policy which can maximize the market value of the firm as per Walter's model. Accordingly, each year at dividend time the capital budget is reviewed in conjunction with the earnings for the period and alternative investment opportunities for the shareholders. In the current year, the firm reports net earnings of Rs. 5,00,000. It is estimated that the firm can earn Rs. 1,00,000 if the amounts are retained. The investors have alternative investment opportunities that will yield them 10 per cent. The firm has 50,000 shares outstanding.What should be the D/P ratio of the company if it wishes to maximize the wealth of the shareholders?
Abbey Naylor, CFA, has been directed to determine the value of Sundanci’s stockusing the Free Cash Flow to Equity (FCFE) model. Naylor believes that Sundanci’sFCFE will grow at 27% for 2 years and 13% thereafter. Capital expenditures,depreciation, and working capital are all expected to increase proportionately withFCFE.a. Calculate the amount of FCFE per share for the year 2011, using the data fromTable 18A.b. Calculate the current value of a share of Sundanci stock based on the two-stageFCFE model.
You are a personal investor investigating the possibility of investing in Pulleys and Plugs Ltd. Which is a taxation category 2 company. You have a required rate of return of 10% per annum and, as such, need to identify the rate of return demanded by the investors in Pulleys and Plugs to compare to your required rate. You have identified the following characteristics of Pulleys and Plugs. The latest balance sheet for the Pulleys and Plugs shows: Long Term Debt Book Value ($) Bonds: Issued at par: $100 6,000,000 Annual coupon of 14% 8 years to maturity Equity Preference Shares: 1,000,000 100,000 shares outstanding Ordinary Shares: 5,000,000 5,000,000 shares outstanding The company's bank has advised that the interest rate on any new debt finance provided for new projects would be 9% p.a. The company's preference shares currently sell for $13.56 each and pay an annual dividend of $2.20. The company's existing ordinary shares currently sell for $0.87 each and pay a dividend per share of…
A closely held plastic manufacturing company has been following a dividend policy which can be maximize the market value of the firm as per walter's model. Accordingly,each year at dividend time the capital budget is reviewed in conjunction with the earnings for the period and alternative investment opportunities for the shareholders.in the current year, the firm reports net earnings of rs.5,00,000. It is estimated that the firm can earn rs.1,00,000 if the amounts are retained. The investors have alternative investment opportunities that will yield them 10 per cent. The firm has 50,000 shares outstanding. What should be the D/P ratio of the company of it wishes to maximize the wealth of the shareholders?
A firm that strongly believes in their residual dividend policy had investment opportunitiesworth Rs. 100 Crores. Its earning in the current period was also Rs.100 crores. The target capitalstructure of the firm involved a debt equity ratio of 1:1.Following its policy, the firm decided to fund the investment opportunities with Rs.50 croresdebt and Rs. 50 lakhs from earnings. The remaining Rs.50 lakhs from earnings was distributed asdividend. Do you think that the firm was right in raising debt? What would be the implicationson the value of the firm if it had decided to fund the investment entirely with the earnings?
Topic: ISLAMIC INVESTMENT Answer all the following question?. Assume that you are the President of ABC Investments, a firm that invests in stock exchange markets worldwide. As president, you appointed investment Managers, Alam and Anas, to select shares that you would invest RM215,000 in each in January next year. Then, managers will manage shares and advise when to sell them, bearing in mind the objective to maximize return. Table 1 shows the data collected in the subsequent year. Investment manager Alam Anas Initial investment RM215,000 RM215,000 Sale value RM229,000 RM235,000 Holding period 4 months 7 months Dividends collected RM6,000 RM9500 Calculate the HPR for the stock of both Investment managers. What is the annualize HPR for Alam and Anas? Note: that the consumer price index (CPI) is a measure taken from examining the average of prices from a hypothetical basket of goods and services purchased by…
On January 1, 2009, you examine two unlevered firms that operate in the same industry, have identical assets worth $80 million that yield a net profit of 12.5 percent per year, and have 10 million shares outstanding. During 2009, and all subsequent years, each firm has the opportunity to invest an amount equal to its net income in (slightly) positive-NPV investment projects. The Beta Company wants to finance its capital spending through retained earnings. The Gamma Company wants to pay out 100 percent of its annual earnings as cash dividends and to finance its investments with a new share offering each year. There are no taxes or transactions costs to issuing securities. Calculate the overall and per-share market value of the Beta Company at the end of 2009 and each of the two following years (2010 and 2011). What return on investment will this firm’s shareholders earn? b. Describe the specific steps that the Gamma Company must take today (1/1/2009), and at the end of each of the next…
Citadel invests $65.75 billion in each of Samsung Hedge Fund (SHF) and Apple Hedge Fund (AHF). Citadel has “1 and 20” fee structure and its management fees and incentive fees are calculated independently at the end of each year. After one year, the investment in SHF is valued at $85.45 billion and the investment in AHF is valued at $91.75 billion. The annual return to an investor in Citadel is closest to A. 16.76%. B. 20.15%. C. 26.45%. D. 31.37%. Clear my choice
ABC and company has been following a dividend policy which can maximize the market value of the firm as per Walter’s model. Accordingly, each year, at dividend time the capital budget is renewed in conjunction with the earnings of the periods and alternative investment opportunities for the shareholders.In the current year, the firm expects earnings of Rs.5,00,000. is estimated that the firm can earn Rs.1,00,000 if the profits are retained. The investors have alternative investment opportunities that will yield them 10% return. The firm has 50,000 shares outstanding. What should be the dividend payout ratio in order to maximize the wealth of the shareholders?Also find out the current market price of the share.
Headland Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company's profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Headland has had a policy of investing idle cash in equity securities. In particular, Headland has made periodic investments in the company's principal vendor of mining equipment, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Headland does not have significant influence over the operations of Norton Industries. Cheryl Thomas has recently joined Headland as assistant controller, and her first assignment is to prepare the December 31, 2025 year-end adjusting entries for the accounts that are valued by the "fair value" rule for financial reporting purposes. Thomas has gathered…

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