VALUATION OF BOND AND SHARES

TUTORIAL - 4
Q1. A companys current price of share is Rs 60
and dividend per share is Rs 4. If its
capitalization rate is 12%. What is the
dividend growth rate?
Q2. A company has the following capital in its
balance sheet:
a) 12-year 12% secured debentures of Rs
1000 each; principal amount Rs 50
Crore; the required rate of return 10%;
matures at par
b) 10 year 14% unsecured debentures of Rs
1000 each; principal amount Rs 30
Crore; interest payable half yearly;
required rate of return 10%; matures at
par
c) Irredeemable Preference shares of Rs
100 each; preference dividend 15%,
preference principal amount Rs 100
crore; required rate of return 13.5%
d) Ordinary share capital of Rs 200 crore at
Rs 100 each share; expected dividend
next year Rs 12; perpetual dividend
growth rate 8%; required rate of return
15%.
Calculate the market values of all the
securities.
Q3. Satya Systems Company has made net
profit of Rs 50 crore. It has announced to
distribute 60% of net profits as dividend to
shareholders. It has 2 crore ordinary shares
outstanding. The companys share is
currently selling at Rs 240. In the past, it
had earned return on equity of 25% and
expects to maintain this profitability in the
future as well. What is required rate of
return on Satyas share?
Q4. A lady, 35 years old, who would like to
retire at the age 65 (30 years from today).
Her goal is to have enough in her
retirement account to provide an income of
Rs 75,000 a year, starting a year after
retirement or year 31, for 25 years
thereafter. She is now committed to save Rs
5000 a year, with the first contribution a
year from now. A single parent with two
children, both of which will be attending
college staring in five years, she wont be
able to increase the annual Rs 5000
commitment until after the kids have
graduated (5th to 10th year). Once the
children are finished with the college, she
will have extra disposable income, but is
worried about just how much of an increase
it will take to meet her ultimate retirement
goals. To help her meet his goal, estimate
how much she will need to save every year,
starting 10 years from now, when the kids
are out of college. Assume an average
annual 8% return in the retirement account.
VALUATION OF BOND AND SHARES
TUTORIAL - 4
Q1. A companys current price of share is Rs 60
and dividend per share is Rs 4. If its

capitalization rate is 12%. What is the

dividend growth rate?
Q2. A company has the following capital in its
balance sheet:
a) 12-year 12% secured debentures of Rs
1000 each; principal amount Rs 50
Crore; the required rate of return 10%;
matures at par
b) 10 year 14% unsecured debentures of Rs
1000 each; principal amount Rs 30
Crore; interest payable half yearly;
required rate of return 10%; matures at
par
c) Irredeemable Preference shares of Rs
100 each; preference dividend 15%,
preference principal amount Rs 100
crore; required rate of return 13.5%
d) Ordinary share capital of Rs 200 crore at
Rs 100 each share; expected dividend
next year Rs 12; perpetual dividend
growth rate 8%; required rate of return
15%.
Calculate the market values of all the
securities.
Q3. Satya Systems Company has made net
profit of Rs 50 crore. It has announced to
distribute 60% of net profits as dividend to
shareholders. It has 2 crore ordinary shares
outstanding. The companys share is
currently selling at Rs 240. In the past, it
had earned return on equity of 25% and
expects to maintain this profitability in the
future as well. What is required rate of
return on Satyas share?
Q4. A lady, 35 years old, who would like to
retire at the age 65 (30 years from today).
Her goal is to have enough in her
retirement account to provide an income of
Rs 75,000 a year, starting a year after
retirement or year 31, for 25 years
thereafter. She is now committed to save Rs
5000 a year, with the first contribution a
year from now. A single parent with two
children, both of which will be attending
college staring in five years, she wont be
able to increase the annual Rs 5000
commitment until after the kids have
graduated (5th to 10th year). Once the
children are finished with the college, she
will have extra disposable income, but is
worried about just how much of an increase
it will take to meet her ultimate retirement
goals. To help her meet his goal, estimate
how much she will need to save every year,
starting 10 years from now, when the kids
are out of college. Assume an average
annual 8% return in the retirement account.