Use the information below to answer questions Q11 and Q12.
A firm's next financial year will start on 31 December 2020. The firm expects to pay a dividend of $1.80 at the end of that financial year. The dividends are expected to grow at 4.20% indefinitely thereafter and beta is 1.50. Athenia Ngcobo determines that the risk premium is 3.50% and that the return on publicly traded debt of the firm is 9.00%, while the liquidity premium and size premium are 0.20% and 1.60% respectively.
Q11. Calculate the value of the firm by using the bond yield risk premium on 31 December 2019.
Q12. Assume the market price of the firm is $25.04 on 31 December 2019. The share is ...
2. fairly priced.
Q13. A company has a book value of $80 per share. All its earnings are paid out as dividends and the value of the perpetuity is $56. The required rate of return on equity is 5.50%. Calculate the value of the dividend an investor will receive for this perpetuity.
Q14. Sahara Limited has a retention ratio of 44% and has the following information:
Use the DuPont analysis to calculate Sahara's sustainable growth.
Q15. The capital structure of Zizo Limited is constant. Zizo Limited finances its increases in fixed assets and working capital with 40% equity and the rest with debt. The current market value of Zizo Limited's outstanding debt is $7 250 million and interest expense is charged at 10.40%. Zizo Limited has 3 000 million shares outstanding. The corporate tax rate is 30%, cost of equity is 16%, net income is $590 million, depreciation is $98 million, fixed capital expenditure is $140 million and increase in working capital is $75 million. Calculate the net borrowing of Zizo Limited.
1. $46.80 million
2. $70.20 million
3. $187.80 million
Q16. Excess risk adjusted return is also called: