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Ms. Sucheta is planning to make an investment in the equity shares of companies and...

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Accounting

Ms. Sucheta is planning to make an investment in the equity shares of companies and thinking of seriously considering any one of the following three companies and gathered the related information about the same. Apparently all the three companies have declared a dividend of Rs. 10 per share for the current year. The dividends of EGK Ltd. are expected to grow at rate of 9.4% for ever. Whare as the dividends of ISV Ltd. are expected to grow at rate of 10% for the next 8 years and stabilise at 6% forever thereafter. GSD Limiteds dividends are expected to grow at a rate of 10% for the first four years, at a rate of 8% for the next four years and a rate of 6% forever thereafter. The 10-year GoI bonds are offering a rate of 5%. The returns of the market portfolio are expected to be 10%. The beta of all the three companies is 1.4. Answer the following questions (5 marks each) 1. What should be the risk adjusted required rate for Ms. Sucheta? 2. What would be the intrinsic values of the equity shares to Ms. Sucheta? 3. If all the three shares are quoted in the market at a) Rs. 420, b) Rs. 425, c) Rs. 430 and d) Rs. 435, what should be her course of action?

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