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Global Finance Rules - Essay Example

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Summary
From the paper "Global Finance Rules" it is clear that the Thomas brothers are expected to pay a $0.50 per share dividend at the end of the year (i.e.D1 = $0.50). the dividend is expected to grow at a constant rate of 7 percent a year. The required rate of return on the stock Ks is 15 percent…
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Global Finance Rules
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Extract of sample "Global Finance Rules"

What is the value per share of the company’s stock?

PV = D0 (1+g)/(ks – g)

PV = $0.50 (1+.07)/(15-.07)

PV = $0.50 (1.07)/(14.93)

PV = $0.50 (.072)

PV = $0.036

The value per share of the company’s stock is $0.036

Assuming the market is in equilibrium. What does the market believe will be the stock price at the end of 3 years? ( That is, what is P3) ?

Expected Return = (Beta x Market Risk Premium) + Risk-Free Rate

Expected Return = (.09*.06) + 5.6

Expected Return = (.0054) + 5.6

Expected Return = 5.6054

The stock price at the end of 3 years will be (5.6054 + $25) x 3 = ($30.6054) x 3 = 91.82.

The stock price at the end of 3 years will be $91.82


Q3) Martell Mining Company’s ore reserves are being depleted. So its sales are falling. Also, its pit is getting deeper each year, so its costs are rising. As a result, the company’s earnings and dividends are declining at a constant rate of 5 percent per year. If D0=$5 and Ks=15%, what is the value of Martell Minings?

PV = D0 (1+g)/(ks – g)

PV = $5.00 (1+.05)/(.15-.05)

PV = $5.00 (1.05)/(.1)

PV = $5.00 (10.5)

PV = $52.50

The value of Martell's minings is $52.50. Read More
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