Question 3Company 3's shares are traded on the London Stock Exchange. It is now 1 January 2023, andthe company has just paid a dividend of £0.45 for 2022. The recent dividend has been(a)(b)(c)20220.45(d)20210.4320200.4120190.39DPS (£)Company 3 has also in issue loan notes which will be redeemed in 7 years' time at the facevalue of £100. It pays a coupon interest of 6%. The company has a cost of equity of 10% and abefore-tax cost of debt of 4%. It pays taxes at 25%.Required20180.37Using the Dividend Growth Model, estimate the share price for Company 3.What is the value of each £100 loan note?Suppose you have noted that the most recent share price of Company 3 does not agreewith the estimation in (a). Explain what may have accounted for that discrepancy.Suppose Company 3 normally pays out 50% of earnings as dividend. Explain how youwould use a PE ratio to determine the company's share price.

Dividend Discount Model (DDM): This model estimates the value of a stock based on the present value…

Answered: Question 3 Company 3's shares are…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter15: Contributed Capital

Section: Chapter Questions

Problem 14P

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