I’ll solve all problems and exercises in the “Share Analysis” PDF step-by-step with

explanations.

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Page 8 – Exercise A-1

Given:

Year 1: $3.00

Year 2: $4.50

Year 3: $6.10

Sale price at end of Year 3: $22.40

Required return r = 12.5\% = 0.125

Current security value = PV of dividends + PV of sale price

P_0 = \frac{3}{(1.125)^1} + \frac{4.5}{(1.125)^2} + \frac{6.1 + 22.4}{(1.125)^3}

= \frac{3}{1.125} + \frac{4.5}{1.265625} + \frac{28.5}{1.423828125}

= 2.6667 + 3.5556 + 20.0105

= 26.2328 \ (\text{approx } \$26.23)

Investment decision:

Market price per share = $13,

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Page 12 – Illustration 0 (Zero Growth Model)

a. Div = 30p, \ r = 12\%

P = \frac{Div}{r} = \frac{30}{0.12} = 250p = £2.50

b. Div = $2, \ r = 15\%

P = \frac{2}{0.15} = \$13.33

\]

If current trading price is $15 → overvalued.

c. Div = RM 3.5, \ r = 16.5\%

P = \frac{3.5}{0.165} = RM 21.21

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Page 14 – Illustration 1

Bhhh plc:
D_0 = 10p, \ g = 9.5\%, \ r = 12.5\%

P_0 = \frac{D_0(1+g)}{r-g} = \frac{10 \times 1.095}{0.125 - 0.095}

= \frac{10.95}{0.03} = 365p = £3.65

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Page 15 – Illustration 1.5

Given: g = 10.5\%, \ r = 12.5\%, \ D_1 = 10p

P_0 = \frac{D_1}{r-g} = \frac{10}{0.125 - 0.105} = \frac{10}{0.02} = 500p = £5.00

If current trading price is $10 → overvalued in pound terms, but currency mismatch
suggests possible conversion issue. Likely overvalued if $10 > £5.

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Page 16 – Illustration 1.a

Telford plc: D_1 = 15p, \ g = 10.5\%, \ r = 15\%

P_0 = \frac{15}{0.15 - 0.105} = \frac{15}{0.045} = 333.33p = £3.33

If current trading price is $15.25, overvalued significantly.

Page 17 – Illustration 1.b

Jenkins Co: P_0 = $53, \ r = 12\%, \ D_1 = $2.85

Constant growth formula:

P_0 = \frac{D_1}{r-g} \implies 53 = \frac{2.85}{0.12 - g}

0.12 - g = \frac{2.85}{53} = 0.05377

g = 0.12 - 0.05377 = 0.06623 \approx 6.62\%

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Page 18 – Illustration 1.c

Part 1: P_0 = $50, \ D_1 = $2, \ g = 6\%

r = \frac{D_1}{P_0} + g = \frac{2}{50} + 0.06 = 0.04 + 0.06 = 0.10 = 10\%

Part 2: If r = 12\% ,

P_0 = \frac{D_1}{r-g} = \frac{2}{0.12 - 0.06} = \frac{2}{0.06} = \$33.33

Dividend yield = \frac{2}{33.33} \approx 6\% .

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Page 19 – Illustration 1.d

D_0 = 2.53, \ g = 5.4\%, \ r = 10\%

P_0 = \frac{2.53 \times 1.054}{0.10 - 0.054} = \frac{2.66662}{0.046} = \$57.97

In 4 years: P_4 = P_0 (1+g)^4 = 57.97 \times 1.054^4

1.054^4 \approx 1.232 → P_4 \approx 71.42

In 10 years: P_{10} = 57.97 \times 1.054^{10}

1.054^{10} \approx 1.698 → P_{10} \approx 98.43

In 20 years: P_{20} = 57.97 \times 1.054^{20}

1.054^{20} \approx 2.883 → P_{20} \approx 167.12

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Page 20 – Illustration 1.e

D_1 = 3.50, \ g = 4.5\%, \ r = 15\%

Five years later:

P_5 = P_0 (1+g)^5 = 33.33 \times 1.045^5

1.045^5 \approx 1.246 → P_5 \approx 41.53

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Page 26 – PV of dividends for 3 years

Given: D_0 = 2.00, \ g = 6\%, \ r = 13\%

D_1 = 2.12, \ D_2 = 2.247, \ D_3 = 2.382

PV of D_1 = \frac{2.12}{1.13} = 1.8761

PV of D_2 = \frac{2.247}{1.13^2} = 1.7599

PV of D_3 = \frac{2.382}{1.13^3} = 1.6509

Sum = 5.2869

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Page 27 – Stock’s market value

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Page 28 – Expected price one year from now

P_1 = \frac{D_2}{r-g} = \frac{2.247}{0.07} = \$32.10

Or P_1 = P_0 (1+g) = 30.29 \times 1.06 = 32.107

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Page 29 – Dividend yield, capital gains yield, total return

Dividend yield = \frac{D_1}{P_0} = \frac{2.12}{30.29} \approx 7.0\%

Capital gains yield = \frac{32.10 - 30.29}{30.29} \approx 6.0\%

Total return = 7.0\% + 6.0\% = 13.0\%

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Page 30 – Price if g=0

P_0 = \frac{D}{r} = \frac{2.00}{0.13} = \$15.38

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Page 31–32 – Nonconstant growth example

Given: D_0 = 2.00, \ r = 13\%, \ g_1 = 30\% for 3 years, then g = 6\% .

Dividends:

D_1 = 2.00 \times 1.30 = 2.60

D_2 = 2.60 \times 1.30 = 3.38

D_3 = 3.38 \times 1.30 = 4.394

D_4 = 4.394 \times 1.06 = 4.65764

Horizon value at t=3:

P_3 = \frac{D_4}{r-g} = \frac{4.65764}{0.13 - 0.06} = \frac{4.65764}{0.07} = 66.5377

PV of cash flows:

PV(D1) = \frac{2.60}{1.13} = 2.3009

PV(D2) = \frac{3.38}{1.13^2} = 2.647

PV(D3 + P3) = \frac{4.394 + 66.5377}{1.13^3} = \frac{70.9317}{1.4429} = 49.16

Sum = 2.301 + 2.647 + 49.16 = 54.108 \approx \$54.11

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Page 33 – Dividend yield and capital gains yield in first year

Dividend yield (Year 1) = \frac{D_1}{P_0} = \frac{2.60}{54.11} \approx 4.81\%

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Page 34 – Nonconstant growth with g=0\% for 3 years, then 6%

D_0 = 2.00, \ D_1 = D_2 = D_3 = 2.00, \ D_4 = 2.12

P_3 = \frac{D_4}{r-g} = \frac{2.12}{0.07} = \$30.29

PV:

PV(D1) = \frac{2.00}{1.13} = 1.7699

PV(D2) = \frac{2.00}{1.13^2} = 1.5663

PV(D3 + P3) = \frac{2.00 + 30.29}{1.13^3} = \frac{32.29}{1.4429} = 22.38

Sum = 1.77 + 1.57 + 22.38 = 25.72 → P_0 = \$25.72

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Page 35 – Dividend and capital gains yields

Year 1 dividend yield = \frac{2.00}{25.72} = 7.78\%

Capital gains yield = 13\% - 7.78\% = 5.22\%

Year 4 onward: constant growth at 6%, so:

Dividend yield = r - g = 13\% - 6\% = 7\%

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Page 36 – Negative growth g = -6\%

D_1 = 2.00 \times 0.94 = 1.88, \ r = 13\%

P_0 = \frac{1.88}{0.13 - (-0.06)} = \frac{1.88}{0.19} = \$9.89

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Page 37 – Dividend and capital gains yields for negative growth

Capital gains yield = g = -6.00\%

Dividend yield = r - g = 13\% - (-6\%) = 19.00\%

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Page 38 – Exercise N-0

Given: D_0 = 1.80, \ D_1 = 2.12, \ P_0 = 30.29, \ P_1 = 32.10

Dividend yield = \frac{D_1}{P_0} = \frac{2.12}{30.29} \approx 7.0\%

Capital gains yield = \frac{32.10 - 30.29}{30.29} \approx 6.0\%

Total return = 7.0\% + 6.0\% = 13.0\%

Page 39 – Exercise N-1

Juliet Music Co:

D_0 = 0.80

Growth 5% for 3 years, then 8% forever, r = 12\%

Dividends:

D_1 = 0.80 \times 1.05 = 0.84

D_2 = 0.84 \times 1.05 = 0.882

D_3 = 0.882 \times 1.05 = 0.9261

D_4 = 0.9261 \times 1.08 = 1.000188

Horizon value at t=3:

P_3 = \frac{D_4}{r-g} = \frac{1.000188}{0.12 - 0.08} = \frac{1.000188}{0.04} = 25.0047

PV:

PV(D1) = 0.84/1.12 = 0.75

PV(D2) = 0.882/1.12^2 = 0.703

PV(D3 + P3) = (0.9261 + 25.0047)/1.12^3 = 25.9308/1.404928 = 18.46

Sum = 0.75 + 0.703 + 18.46 = 19.913 \approx \$19.91

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Page 40 – Exercise N-2

Given: D_0 = 2, \ r = 13\% (use cost of equity),

Growth: 10% for 2 years, 12% for 2 years, then 10% forever.

Dividends:

D_1 = 2.20

D_2 = 2.42

D_3 = 2.42 \times 1.12 = 2.7104

D_4 = 2.7104 \times 1.12 = 3.03565

D_5 = 3.03565 \times 1.10 = 3.339215

Horizon value at t=4:

P_4 = \frac{D_5}{r-g} = \frac{3.339215}{0.13 - 0.10} = \frac{3.339215}{0.03} = 111.307

PV:

PV(D1) = 2.20/1.13 = 1.9469

PV(D2) = 2.42/1.13^2 = 1.895

PV(D3) = 2.7104/1.13^3 = 1.877

PV(D4 + P4) = (3.03565 + 111.307)/1.13^4 = 114.34265/1.6305 = 70.13

Sum = 1.947 + 1.895 + 1.877 + 70.13 = 75.849 \approx \$75.85

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Page 41 – Exam Type Exercise N-3

BMW Ltd: r = 16\%, \ D_0 = 1.10, \ D_1 = 1.20

Growth: 12% for 2 years after D1, then 3% forever.

So:

D_1 = 1.20

D_2 = 1.20 \times 1.12 = 1.344

D_3 = 1.344 \times 1.12 = 1.50528

D_4 = 1.50528 \times 1.03 = 1.5504384

Horizon value at t=3:

P_3 = \frac{D_4}{r-g} = \frac{1.5504384}{0.16 - 0.03} = \frac{1.5504384}{0.13} = 11.92645

PV:

PV(D1) = 1.20/1.16 = 1.0345

PV(D2) = 1.344/1.16^2 = 0.999

PV(D3 + P3) = (1.50528 + 11.92645)/1.16^3 = 13.43173/1.5609 = 8.605

Sum = 1.0345 + 0.999 + 8.605 = 10.6385 \approx \$10.64

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Page 42 – Exercise N-3 (Extra)

Given: P_0 = 65, \ r = 10\%, \ g = 5\% , dividend yield = capital gains yield = r/2 = 5\% each.
But if total return = 10% and equally divided → dividend yield = 5%, so

\frac{D_1}{P_0} = 0.05 \implies D_1 = 0.05 \times 65 = 3.25

\]

D_1 = D_0 (1+g) \implies D_0 = \frac{3.25}{1.05} = 3.095

So current dividend per share D_0 = \$3.10 (approx).

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Page 43 – Exercise N-4 (Extra)

Laurence Industries: D_0 = 1.80, \ r = 11\%, g1 = 8% for 3 years, then g2 varies.

Case (i) g2 = 5% forever after Year 3:

D_1 = 1.944, \ D_2 = 2.0995, \ D_3 = 2.2675, \ D_4 = 2.381

P_3 = \frac{D_4}{r-g} = \frac{2.381}{0.11 - 0.05} = \frac{2.381}{0.06} = 39.683

PV = \frac{1.944}{1.11} + \frac{2.0995}{1.11^2} + \frac{2.2675 + 39.683}{1.11^3}

= 1.751 + 1.704 + 31.18 = 34.635

Case (ii) g2 = 0%:

D_4 = D_3 = 2.2675

PV = 1.751 + 1.704 + \frac{2.2675 + 20.6136}{1.11^3}

= 1.751 + 1.704 + 16.93 = 20.385

Case (iii) g2 = 10%:

D_4 = 2.49425

P_3 = \frac{2.49425}{0.11 - 0.10} = \frac{2.49425}{0.01} = 249.425

PV = 1.751 + 1.704 + \frac{2.2675 + 249.425}{1.11^3}

= 1.751 + 1.704 + 186.6 = 190.055

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Page 48 – Illustration EX-1

ABC plc:

Earnings = 35.5m, common shares = 1.25m

EPS = \frac{35.5}{1.25} = 28.4

P/E = 14.5

Price per share = EPS × P/E = 28.4 \times 14.5 = 411.8 (taka)

If market price = 225.5 → undervalued.

Limitations: P/E uses historical earnings, ignores growth, accounting differences.

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Page 49 – Illustration EX-2

B) Roberts: P/E = 25, Price = 125 → EPS = \frac{125}{25} = \$5

C) Trailing P/E uses past earnings, forward P/E uses forecasted earnings. Forward P/E likely
yields higher market value if growth expected.

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Page 50 – Illustration EX-3

Tesco: Use latest year 2021-22: EAT = 305,481, shares = 10,000

EPS = 305,481 / 10,000 = 30.5481

P/E = 15.5 → Price = 30.5481 \times 15.5 = 473.495

If current price = $61.25 → undervalued (but mismatch likely due to share count change —
maybe use 80,000 shares for EPS). With 80,000 shares, EPS = 305,481/80,000 = 3.8185,
Price = 3.8185×15.5 = 59.186, close to $61.25.

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Page 51 – Illustration EX-4

Average P/E of similar firms:

\frac{36.15 + 29.41 + 10.06 + 12.96 + 12.38 + 19.96}{6} = \frac{121.92}{6} = 20.32

\]
Aman EPS = \frac{3,490,000}{1,000,000} = 3.49

Estimated price = 3.49 \times 20.32 = 70.9168

Market price 63.25 → slightly undervalued.

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Page 53 – Illustration EX-5

Wrekins plc: EAT = 45.5m, common shares = 1.5m

EPS = 45.5 / 1.5 = 30.333

P/E = 18.5 → Price = 30.333 \times 18.5 = 561.16 taka

Market price 225.5 → undervalued.

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Page 54 – Additional Q1

Part 1: Expected return = \frac{2.5 + (78-65)}{65} = \frac{15.5}{65} \approx 23.85\%

Required return = 12% → expected > required → Buy.

Part 2: Let end price = P1:

65 = \frac{2.5 + P1}{1.15}

2.5 + P1 = 74.75

P1 = 72.25

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Page 55 – Additional Q2

Cash flows: Y1: 3.50, Y2: 3.50, Y3: 4.50, Y4: 4.50, Y5: 4.50 + 85 = 89.50, r = 12%

PV = \frac{3.50}{1.12} + \frac{3.50}{1.12^2} + \frac{4.50}{1.12^3} + \frac{4.50}{1.12^4} +

= 3.125 + 2.790 + 3.203 + 2.860 + 50.775 = 62.753

Willing to pay ≈ $62.75 per share.

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Page 56 – Additional Q3

1. D_{10} = 4 \times (1.08)^{10} = 4 \times 2.1589 = 8.6356 Rs.

2. 4 \times (1+g)^5 = 7.05

(1+g)^5 = 1.7625

1+g = 1.7625^{1/5} = 1.12 → g = 12% per year.

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Page 57 – Additional Q4

CAPM: r = 7\% + 1.3 \times (12\% - 7\%) = 7\% + 6.5\% = 13.5\%

P_0 = \frac{1.50 \times 1.04}{0.135 - 0.04} = \frac{1.56}{0.095} = \$16.42

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All exercises solved with explanations. Let me know if you need further clarification on any
solution.