Security Analysis & Portfolio management, Other Engineering

ABC Ltd. has an investment opportunity available which will involve a capital outlay in each of
the next 2 years and which will produce benefits during the following 3 years. A summary of the
financial implications of this investment is given below:
Year Cash Flow (Rs ‘000)
1 (1,000)
2 (1,000)
3 100
4 1,300
5 3,100
ABC Ltd. currently has 1,00,000 shares in issue. The dividend just paid was Rs 15 per share.
In the absence of the above investment, dividends are expected at this level for the next 3
years but will then demonstrate perpetual growth of 10 per cent p.a. ABC Ltd. is currently all
equity financed and the required rate of return of the equity investor is estimated to be 18 per
cent. The company has a long established policy of not using any debt finance and, because
of the current depressed state of the stock market, could not in the near future issue new
equity. The only possible way of financing the investment is, therefore, to reduce the
dividend payments made in the next 2 years. Cash received from the new investment will all
be distributed. Growth in dividends @10 per cent will also be maintained because of other
operations.
Required:
a) Calculate the current share price of ABC Ltd.
b) Calculate the share price after the investment has been accepted, assuming the market
knows of the dividend changes that will result from the investment using a Dividend
Valuation Model.
Posted Date: 4/20/2012 12:31:14 AM | Location : United States







Related Discussions:- Security Analysis & Portfolio management, Assignment Help, Ask Question on Security Analysis & Portfolio management, Get Answer, Expert's Help, Security Analysis & Portfolio management Discussions

Write discussion on Security Analysis & Portfolio management
Your posts are moderated
Related Questions

Advantages of hot extrusion

Oil supply failure - Propeller: To prevent an overspeed caused by an oil supply failure, one of two methods may be employed: • Hydraulic lock valve The pitch lock mecha

Heat conduction problem in hollow cylinder There are a lot of researches for calculating the temperature field in various shapes using different boundary and initial cond

how to making terrestrial tele scope an how its work and formulation of terrestrial telescope


Gravity Die Casting  In PERMANENT MOULD CASTING, molten metal is poured under gravity into a metal mould where it remains until it solidifies. The mould is then opened and the

Q.4 Explains subtractive rapid prototyping process and compare with additive process.                                                   OR What are additive and su

Fire safety management for clubs: In clubs and other places where there is music being played, or other entertainment, it is important that the music (or other entertainment)

State-estimators for continuous time linear systems The state space state and output equations of continuous time linear systems is of the form? x = Ax + Bu + v and y