Corporate Finance FIN 622

Fall 2007

Assignment 01

Corporate Finance FIN 622 Assignment # 01 Semester Fall 2007 Total Marks: 10 Instructions:
1. Use a 12-point font in Times New Roman. 2. Show all necessary formulas and calculations . 3. This Assignment covers Lecture 03 to Lecture 08 of your course. 4. Due date for the submission of Assignment is October 22, 2007. 5. Upload your assignment with in due date and time. No assignment will be accepted after the due date and time. 6. Be very careful while uploading your assignment, as no assignment will be replaced after it was uploaded on VULMS. 7. No credit will be given to copied assignments.

Question Ezzell Pakistan is a Public Limited Company listed on the three stocks exchanges of the country i.e. Karachi, Lahore and Islamabad. The company deals in manufacturing of Electric appliances. The research and development department of the corporation has developed a solar panel capable of generating 200 % more electricity than any solar panel currently available in the market. As a result of this achievement, the financial analysts in stock market expect that the company will experience a 15% annual growth rate for the next five years. By the end of 5 years, other firms will have developed comparable technologies; and the corporations growth rate will slow down to 5% per annum for an indefinite period. Stockholders require a return of 12% on Ezzell Pakistans common stocks. The most recent annual dividend (D o), which was paid yesterday, was Rs.1.75 per share.

Virtual University of Pakistan

Corporate Finance FIN 622 Required:

Fall 2007

Assignment 01

a) Calculate expected dividends of the company for the next five years. b) Calculate the value of the stock today i.e. Po. c) Calculate the expected dividend yields for 1st, 5th and 6th years. (e.g., for 1st year Dividend yield = D1/ Po) Marks: 2.5 + 3 + 4.5 = 10

Virtual University of Pakistan