Acc501 GDB solution
Sunday, May 29, 2011 Posted In Acc Edit This“Business Finance (ACC501)”
This is to inform that Graded Discussion Board (GDB) has opened according to the following schedule
Schedule
Opening Date and Time
May 27, 2011 At 12:01 A.M. (Mid-Night)
Closing Date and Time
May 31, 2011 At 11:59 P.M. (Mid-Night)
Note: No extra or bonus/grace period is available for attempting GBD.
“Discussion Question”
“Mr. A” wanted to purchase a stock that is trading in market at Rs. 1,000 per share, that stock is expected to have a year-end per share dividend of Rs. 80, which is expected to grow at constant rate g throughout life. The stock’s required rate of return is 14 percent.
You are required to answer the following by analyzing the above mentioned situation:
- If “Mr. A “is also an analyst, what would be value of “g”?
- What will be price of stock if required rate of return is 15% and other things remain same? Should “Mr. A” purchase stock in this situation.
- What will be the value of required rate of return if stock price is decreased to Rs. 700 and other thing remain same.
Solution:
1. = 6%
2. = 888.88 Rs. at, g= 6%
and,
3. = 17% at g= 6%
:::::::::::::::::::
see lecture#23
im not sure but my answer is that
1) g = 0.06
2) P = 1000
3) R = 17%
:::::::::::::::::::::::::::::::::::
The formulae to calculate,
1). g = R - (D/P)
g = 6%
2). P = D(1+g)/R-g
P = 942.22
3). R = (D/P)+g
R = 17%
:::::::::::::::::::::::::::::::::::::
“Discussion Question”
“Mr. A” wanted to purchase a stock that is trading in market at Rs. 1,000 per share, that stock is expected to have a year-end per share dividend of Rs. 80, which is expected to grow at constant rate g throughout life. The stock’s required rate of return is 14 percent.
You are required to answer the following by analyzing the above mentioned situation:
If “Mr. A “is also an analyst, what would be value of “g”?
What will be price of stock if required rate of return is 15% and other things remain same? Should “Mr. A” purchase stock in this situation.
What will be the value of required rate of return if stock price is decreased to Rs. 700 and other thing remain same.
SOlution
1. = 6%
2. = 888.88 Rs. at, g= 6%
and,
3. = 17% at g= 6%
see lecture#23
im not sure but my answer is that
1) g = 0.06
2) P = 1000
3) R = 17%
Another solution
1.p=D/(R-g)
1000=80/(0.14-g)
1000(0.14-g)=80
140-1000g = 80
140-80 =1000g
g= 0.06 0r 6%
2.P= D/ (R-g)
P =80/(0.15-0.06)
=80/0.09
P=888.88
3. P=D/(R-g)
700=80/(R-0.06)
700(R-0.06) = 80
700R-42 = 80
R=80+42/700
R= 80
