Calculate the Estimated Share Price for the Following Companies Assuming

question 29

Essay

Calculate the estimated share price for the following companies assuming a required return of 12% p.a.(a)Red's dividends have been $1.70 per share for some time.It does not reinvest any of its earnings and therefore is not expected to grow in the foreseeable future.(b)White's most recent dividend was $1.70 per share and dividends are expected to continue to grow at 4% indefinitely.

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Definitions:

High Liquidity

Refers to assets that can quickly be converted into cash with minimal impact on their price.

High Risk

Referring to investments or activities with a greater than usual potential for loss or that may involve significant uncertainty.

Equity Method

An accounting technique used to record investments in other companies where the investor has significant influence but not full control.

Investment Account

A financial account that holds securities, cash, and other investments for investors, typically managed by a financial institution or investment firm.