American International University Bangladesh

Solution @ Assignment_Final-Summer
Submitted To:

Dr. Nisar Ahmed

Professor

Faculty of Business Administration

American International University Bangladesh

Submitted By:

Group Name Name ID

KAZI MD. FERDOUS 21-92167-3
ABDULLAH AL MOTIN 21-92260-3
3 MAHMUDUL HASAN SHUVO 21-92169-3
SK NAZMUL HAQUE 21-92168-3

Date of Submission:

Aug 25, 2022

 Assignment on Corporate Financial Strategy
The company chosen for your group will be your designated share for this assignment.

We chose RAK ceramics as our designated share for this report. RAK Ceramics is one of the
largest ceramics’ brands in the world. Specialising in ceramic and gres porcelain wall and floor
tiles, tableware, sanitary ware and faucets, the Company has the capacity to produce 118 million
square meters of tiles, 5 million pieces of sanitary ware, 24 million pieces of porcelain tableware
and 1 million pieces of faucets per year at our 21 state-of-the-art plants across the United Arab
Emirates, India and Bangladesh. RAK Headquartered in the United Arab Emirates

Historical dividend payment pattern for the last 10 years and growth rate

SL Year Dividend Growth

(in %) Rate
01 2012 15%
02 2013 15% 0.00% (Present year / Previous year)-1*(100)
03 2014 25% 66.67%
04 2015 25% 0.00%
05 2016 20% -20.00%
06 2017 10% -50.00%
07 2018 10% 0.00%
08 2019 15% 50.00%
09 2020 10% -33.33%
10 2021 10% 0.00%
Total 13.33%

Average growth rate of Dividend (in %) = 1.48%

Constant Growth model we use, V= D1/(k-g),

Where,

 Last year Dividend per share 10% of base value BDT 10 TK. This is BDT 1.00 per share
 Growth rate = 1.48%
 I’m assuming a discount rate of 6% per annum. It is my risk-free rate. Suppose if i do not
buy this stock, and we buy a bank deposit. Banks are offering a 6% rate of return on
a fixed deposit scheme.
D0 = BDT 1.00

D1 = D0 (1 + Growth Rate)

= BDT 1.00 (1 + 0.0148)

= BDT 1.0148

V= D1/(k-g)

= BDT 1.0148 / (0.06 - 0.0148)

= BDT 22.451

Different combination of k and g value as per V= D1/(k-g), D1= BDT 1.0148

K value 10% 12% 15% 18% 20% 25%

g=3% 14.49 11.27 8.45 6.76 5.96 4.61
g=4% 16.91 12.68 9.22 7.2 6.34 4.83

g=5% 20.29 14.49 10.14 7.80 6.76 5.07

g=6% 25.37 16.91 11.27 8.45 7.24 5.34

g=8% 50.74 25.37 14.49 10.14 8.45 5.96

g=10% 50.74 20.29 12.68 10.14 6.76

Present market value of RAK Ceramics is 44.70 BDT (closing rate 24-Aug-2022). Based on
Growth rate = 1.48% and discount rate 6% this is overvalued share an decision is not to buy

As per above table and different combination based on 44.70 BDT (closing rate 24-Aug-2022)
we can buy the share when the growth rate 8% and discount rate 10% or growth rate 10% and
discount rate 12%. Otherwise all other combination is overvalued based on the present market
price.
Price graph for the last one year of RAK Ceramics