Financial Management

Valuation of Shares
Exercises
Version 1

Week 7: Exercises
Todays Share Price
1. Company As last dividend was declared as RM2.00 per
share. The dividend is expected to grow constantly
forever at 8%. Investors required rate of return is 13%.
What is todays share price?

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Week 7: Exercises (Cont)

Interpret Todays Share Price
2. As an ordinary shareholder, what does the share price
calculated in Question 1 mean to you?

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Week 7: Exercises (Cont)

Cost of Equity using CAPM approach
3. Company Ds beta is 1.15. Currently, the 10-year
Malaysian Government Securities is yielding 5%. The
equity market risk premium is 9%. What is Company Ds
cost of equity?

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Week 7: Exercises (Cont)

Todays Per Share Value
4. From Years 1 to 2, there is no dividend growth in Z
Telecoms ordinary shares (common stock). From Year 3
onwards, the dividend payment is expected to grow at 4%
per annum. This year's dividend was declared as
RM2.00. The cost of equity is the one calculated in
Question 3.
What is the value per share of Z Telecoms ordinary
shares today?

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Week 7: Exercises (Cont)

Per Share Value in 1 Years Time
5. Using the information given in Question 4, how much is
the share worth 1 year from now?

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Week 7: Exercises (Cont)

Concept Checking
6. As an ordinary shareholder, what type of investor are
you? (Hint: There is more than 1 answer)
a. Share Investor
b. Bond Investor
c. Stock Investor
d. Equity Investor
e. Debt Investor

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Week 7: Exercises (Cont)

Concept Checking
7. What does the growth rate (g) in Valuation of Shares topic
mean?
(Hint:
i. Growth rate of what?
ii. What is the frequency of the growth rate? Daily?
Monthly? Yearly?
iii. Is the growth rate expected/predicted/estimated OR
guaranteed?)

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Valuation of Shares

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