Mr. A is thinking of buying shares at 500 each having face value of 100. He is expecting a bonus at the ratio of 1: 5 during the fourth year. Annual…

Mr. A is thinking of buying shares at 500 each having face value of 100. He is expecting a bonus at the ratio of 1: 5 during the fourth year. Annual expected dividend is 20% and the same rate is expected to be maintained on the expanded capital base. He intends to sell the shares at the end of seventh year at an expected price of 900 each. Incidental expenses for purchase and sale of shares are estimated to be 5% of the market price. He expects a minimum return of 12% per annum. Should Mr. A buy the share? If so, advise the maximum price should he pay for each share? Note: 1. Assume that there is no tax on dividend income and capital gains. 2. Present Value Factors should be used up to three decimal places, and the final calculations should be rounded off to two decimal places.