Joniper Berhad is a firm operating in a mature industry. The firm is expected to maintain a constant dividend payout ratio and a constant growth rate of earnings for the foreseeable future. The firm’s earnings for the current year is RM5 per share. The dividend payout ratio has been constant at 40% in the recent years. Joniper Berhad’s return on equity (ROE) is expected to remain at 10% in the future. Required return on similar risk investment is at 12%.


i. Determine whether Jementah Berhad’s stock is correctly priced if it is selling at RM25 per share. (5m)

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ii. Explain the effect of increasing the investor’s required rate of return on the value of the firm’s common stock. (3m)

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