1. You are interested in buying shares in Santos Ltd. Dividends are 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?

 
2. You know that the CAPM equation predicts that the required return of Domino Pizza Enterprises is 23.6 per cent. If the risk-free rate of return is 8 per cent and the expected return on the market is 20 per cent, then what is Domino Pizza Enterprises’ beta? What does this beta say about the company’s shares?

3. The ANZ Bank pays a dividend of $3.30 on its preference shares. What is the

current price of this preference share given a required rate of return of 11.6 per

cent?

4. The Amazing.com Corporation currently pays no cash dividends, and it is not

expected to for the next 5 years. Its sales have been growing at 25% per year.

a. Can you apply the constant growth rate DDM to estimate its intrinsic value?

Explain.

b. It is expected to pay its first cash dividend $1 per share 5 years from now. It its market capitalization rate (required rate of return) is 20% and its dividends are

expected to grow by 10% per year, what would you estimate its intrinsic value

to be?

5. A company has recently declared a dividend of $10 per share, with the dividend expected to grow at a rate of 5% per annum in the future. Estimate the value of a share in the company, given the following information:

Risk free rate of interest = 5%

Market risk premium = 7%

Equity beta value for this company = 1.4

 
6. Briar Ltd a biotech company. Dividends are expected to grow at 22% for the

next 3 years. The company then expects to grow at a constant rate of 9 per cent forever. The company just paid a dividend of $1.75. If the required rate of return is 20 per cent, what is the market value of this share?