# Problems 12 kuenzang wangchuk pgdfm business week 5

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Problems12Kuenzang Wangchuk, PGDFM (Business), Week 5 solution
P7-6Common Stock Value-Zero Growth:Kesav, Ltd., is a well-established supplier of finepercussion instruments to orchestras all over India. The company’s class A common stock haspaid a dividend of Rs. 5 per share per year for the last 15 years. Management expects to continueto pay at that rate for the foreseeable future. Albert purchased 100 shares of Kesav class Acommon 10 years ago at a time when the required rate of return for the stock was 16%. He wantsto sell his shares today. The current required rate of return for the stock is 12%. How muchcapital gain or loss will Albert have on his shares?
P7-7Preferred stock valuation:Jones Design wishes to estimate the value of its outstanding preferredstock. The preferred issue has Rs. 80 par value and pays an annual dividend of Rs. 6.40 pershare. Similar risk preferred stocks are currently earning a 9.3% annual rate of return.a.What is the market value of the outstanding preferred stock?b.If an investor purchases the preferred stock at the value calculated in part a, how muchdoes she gain or loss per share if she sells the stock when the required return on similarrisk preferred has risen to 10.5%? Explain.Solution
13Kuenzang Wangchuk, PGDFM (Business), Week 5 solution
The investor will loseNu. 7.87(68.82-60.95) per share because when required rate of returnincreases; the value of preference share declines.P7-9Common stock value-Constant growth:Abhishek Roofing, Ltd., common stock paid a dividendof Rs. 1.20 per share last year. The company expects earnings and dividends to grow at a rate of5% per year for the foreseeable future.a.What required rate of return for this stock would result in a price per share of Rs. 28?b.If Abhishek expects both earnings and dividends to grow at an annual rate of 10%, whatrequired rate of return would result in a price per share of Rs. 28?Solution
P7-1014Kuenzang Wangchuk, PGDFM (Business), Week 5 solution

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