a. Discuss why maximising the value of the company's share price is the appropriate goal for management. b. A number of publicly traded firms pay no dividends yet investors are willing to buy shares in these firms. How is this possible? Does this violate our basic principle of share valuation? Explain. c. Wild Horses plc has just announced that it will not pay a dividend because of atrocious trading conditions over the previous year. However, analysts expect the company to pay a dividend of £0.50 next year. If dividends are expected to grow at a constant rate of 10 per cent per year indefinitely, and investors require a 12 per cent return on the company, what is: (i)What is the current price? (ii)What will the price be in five years? (iii) What will be the price in ten years? d. Red plc, Yellow plc and Blue plc each will pay a dividend of £2.35 next year.The growth rate in dividends for all three companies is 5 per cent. Therequired return for each company's shares is 8 per cent, 11 per cent and 14per cent, respectively. What is the share price for each company? What doyou conclude about the relationship between the required return and theshare price? e. Antiques R Us is a mature manufacturing firm. The company just paid a €12dividend, but management expects to reduce the payout by 4 per cent peryear indefinitely. If you require an 11 per cent return on this equity, what willyou pay for a share today?

Solved: a. Discuss why maximising the value of the company's share price is t

Home
questions and answers
a discuss why maximising the value of the companys share price is the

Question

a. Discuss why maximising the value of the company's share price is the appropriate goal for management. b. A number of publicly traded firms pay no dividends yet investors are willing to buy shares in these firms. How is this possible? Does this violate our basic principle of share valuation? Explain. c. Wild Horses