FIN3701 Assignment 1 (CFIN3701 Assignment 1 (COMPLETE ANSWERS) Semester 2 2024 (232195) - DUE 20 August 2024OMPLETE ANSWERS) Semester 2 2024 (232195) - DUE 20 August 2024
FIN3701 Assignment 1 (COMPLETE ANSWERS) Semester 2 2024 - DUE 20 August 2024 ; 100% TRUSTED Complete, trusted solutions and explanations.
FIN3701 Assignment 1 (COMPLETE ANSWERS) Semester 2 2024 (232195) - DUE 20 August 2024 ; 100% TRUSTED Complete, trusted solutions and explanations.
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FIN3701 Assignment 2
(COMPLETE
ANSWERS) Semester
1 2024 (505104) -
DUE 24 April
2024 ;100% TRUSTED
ADMIN
[COMPANY NAME]
, QUESTION 1 [10 marks] Bonga currently has a portfolio of ordinary shares
representing several different companies. Bonga considers it to be a well-
balanced investment portfolio, but he wants to reduce the overall risk of the
portfolio a bit more by including ordinary shares from Titan Mining
Corporation. The following information on Titan Mining Corporation is
available: For the period 2017 to 2020, the company paid the following
dividends per year respectively: R3,14; R3,55; R3,89; and R3,95. The 2021
dividend is expected to increase by the average growth rate of the dividends
between 2017 and 2020, and the dividend will increase by 10% per year
indefinitely from 2022 onwards. Bonga requires a return of 15% on his
investment portfolio and is not prepared to pay more than R52,00 per ordinary
share of Titan Mining Corporation. REQUIRED: 1.1 Calculate the current price
of Titan Mining Corporation’s ordinary share. (8 marks) 1.2 Should Bonga
purchase Titan Mining Corporation shares to include in his investment
portfolio? Provide reasons for your answer. (2 marks) KINDLY NOTE THAT
THERE ARE TWO COMPULSORY ASSIGNMENTS FOR THE FIRST
SEMESTER.
To solve this problem, we need to calculate the current price of Titan Mining Corporation's
ordinary share using the dividend discount model (DDM). Then, we'll determine whether Bonga
should purchase Titan Mining Corporation shares for his investment portfolio.
1.1 Calculate the current price of Titan Mining Corporation’s ordinary
share:
Step 1: Calculate the growth rate of dividends from 2017 to 2020:
Dividend Growth Rate=Dividend in 2020−Dividend in 2017Dividend in 2017D
ividend Growth Rate=Dividend in 2017Dividend in 2020−Dividend in 2017
Dividend Growth Rate=3.95−3.143.14=0.813.14≈0.258Dividend Growth Rate=
3.143.95−3.14=3.140.81≈0.258
Step 2: Calculate the dividend for 2021:
Dividend in 2021=Dividend in 2020+Dividend Growth Rate×Dividend in 2020
Dividend in 2021=Dividend in 2020+Dividend Growth Rate×Dividend in 2020
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