INTI International College Subang

CORPORATE FINANCE
Tutorial 2
Discussion Questions
1. Discuss the THREE (3) main dividend valuation techniques.

2. Compare the dividend based valuation with free cash flow based valuation.

3. Explain the advantages and disadvantages of dividend based valuation.

4. Melian shares currently sell for $70. Investors expect a year-end dividend of $3 and year-
end stock price of $74. Required return is 9%. Calculate the intrinsic value of Melian stock.

5. Warns shares currently sell for $80. Investors expect a year-end dividend of $4 and year-
end stock price of $89. Required return is 10%. Calculate the intrinsic value of Warns stock.

6. Monic shares currently sell for $30. Investors expect a year-end dividend of $1.5 and year-
end stock price of $44. Required return is 5%. Calculate the intrinsic value of Monic stock.

7. Hens Company shares are expected to pay dividends of $1.25 and $1.50 at the end of each
of the next two years. The price at the end of two years is forecasted to be $65. Calculate
the intrinsic value of Hens shares today if the required return or cost of equity is 13%.
Comment on the value if the current share price is $50.

8. Fence Company shares are expected to pay dividends of $2.50 and $2.70 at the end of each
of the next two years. The price at the end of two years is forecasted to be $75. Calculate
the intrinsic value of Fence shares today if the required return or cost of equity is 12%.
Comment on the value if the current share price is $60.

9. French Ltd. Expects dividends of €1, €1.5, and €2.0 over the next three years. Expected
stock price at the end of year 3 is €80. If the cost of equity is 18%, compute the intrinsic
value of French shares today. Comment on the value if the current market price of
Fragrance Ltd is 45.00 euros.
10. Philip Ltd. Expects dividends of €2, €2.5, and €3.0 over the next three years. Expected stock
price at the end of year 3 is €90. If the cost of equity is 19%, compute the intrinsic value of
Philip shares today. Comment on the value if the current market price of Philip Ltd is 55.00
euros.

11. A firm paid a dividend yesterday of $2.50 and dividends are expected to grow at a long
term constant rate of 6%. The required return is 11%. If an investor offers $40, should the
shareholder sell its equity?

12. A firm paid a dividend yesterday of $3.50 and dividends are expected to grow at a long
term constant rate of 7%. The required return is 12%. If an investor offers $80, should the
shareholder sell its equity?

13. A firm paid a dividend yesterday of $4.50 and dividends are expected to grow at a long
term constant rate of 8%. The required return is 14%. What is the minimum price that a
shareholder should sell?