Tutorial 2 Problems

# Tutorial 2 Problems - TUTORIAL PROBLEMS - II Question-1...

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1 of 2 TUTORIAL PROBLEMS - II Question-1 Dot.com Technologies’ dividend has been growing at a rate of 20% per year in recent years. This growth rate is expected to last for another 2 years. After these two years dividend is expected to grow at a 6% per annum. If the dividend per share in year 1 is expected to be \$1.60 and the equity cost of capital is 10%. Calculate the price per share in year 0 and 1, and the dividend and the capital gains yield between year 0 and 1. Question-2 Consider two “identical” firms X and Y with a cost of capital of 10%, no debt, and 2 million shares outstanding. These companies only differ in how they will distribute cash next year: X will pay \$10 million dividend in year 1 Y will repurchase \$10 million in outstanding shares in year 1 After year 1, the two firms will be identical thereafter, that is, they will pay an annual total dividend of \$5 million. Calculate the price per share at the end of year one, P 1 (after the dividend has been paid or the shares have been

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## This note was uploaded on 12/10/2011 for the course MGCR 341 taught by Professor Trainor during the Winter '08 term at McGill.

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Tutorial 2 Problems - TUTORIAL PROBLEMS - II Question-1...

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