7

Question 1

Linovo Limited is operating in computer industry for quite sometime now. The company is
considered the most risky company of the sector because of heavy investments in research
and development which sometime result in success and seldom result in failure and loss of
huge investments.

Cost of equity of HO Limited is 16%. Shareholders of Linovo limited charges a premium of

2.5%. The company paid a dividend of Rs 24 per share in the last year and Rs 25.32 per share in
the current year. The dividend is expected to grow in the same manner.

Required
Calculate the market value of the company if the copmany has in issue a share capital of
65,800 shares

Question 2
Mishqat Limited is considering to obtain some loan and wishes to calculate the impact of it on
the market value of equity (per share)

Before After
Loan Loan
Expected Dividend per share 40.00 48.00
Growth rate 4.00% 5.00%
Ke 16.00% 17.50%

Required
Calcualte the impact on market value per share
 Sol 7

Solution 1

Growth rate in dividends

Current dividend 25.32

Last dividend 24.00
Growth rate 5.50%

Cost of Equity (Ke) 18.50%

MV per share 205.48

Total Shares 65,800.00
Total MV 13,520,685

Solution 2

Dividend 40.00 48.00

Growth rate 4.00% 5.00%
Ke 16.00% 17.50%
MV per share 346.67 403.20