a) Consider the following companies:
If the market capitalisation rate for each share is 8%, which company's share is the most valuable?
b) Tiger Plc's shares are currently trading at 150 pence per share. Security analysts are forecasting a long-term earnings growth rate of 10%. The company has just paid a dividend of 3 pence per share.
i. Assume dividends are expected to grow along with earnings at 10% per year in perpetuity. What rate of return are investors expecting?
ii. Tiger is expected to earn about 8% on book equity and to pay out 40% of earnings as dividends. Based on these forecasts, what is the growth rate of dividends? What is the rate of return that investors expect?
c) On a bank loan, Bank A quotes you 12 percent compounded weekly, Bank B quotes you 12.1 percent compounded quarterly, while Bank C quotes you 12.25 percent compounded annually. Calculate these banks' effective annual rates and comment on your answers.