1. Outline the potential financial risks to a loan guarantor.
2. Kay Williams is interested in purchasing the ordinary shares of Vasse Felix Pty Ltd which is currently priced at $37.45. The company expects to pay a dividend of $2.58 next year and expects to grow at a constant rate of 7 per cent.
a. What should the market value of the share be if the required rate of return is 14 per cent?
b. Is this a good buy? Why or Why not?
3. Your required rate of return is 23 per cent. Gnangara Pty Ltd has just paid a dividend of$3.12 and expects to grow at a constant rate of 5 per cent. What is the expected price of the share 3 years from now?
4. Jenny Banks is interested in buying shares in Pierro Holdings Pty Ltd which is growing at a constant rate of 6 per cent. Last year, the company paid a dividend of $2.65. The required rate of return is 16 per cent. What is the current price for this share? What would be the price of the share in year 5?
5. Rokewood Junction Winery stores has forecast a high growth rate of 40 per cent for the next 2 years, followed by growth rates of 25 per cent and 20 per cent for the following 2 years. It then expects to stabilise its growth to a constant rate of 7.5 per cent for the next several years. The company paid a dividend of $3.50 recently. If the required rate of return is 18 per cent, what is the current market price of the share?
6. Chambers Rosewood Pty Ltd issued perpetual preference shares a few years ago. The company pays an annual dividend of $4.27, and your required rate of return is 12.2 per cent.
a. What is the value of the share given your required rate of return?
b. Should you buy this share if its current market price is $34.41? Explain.