Bento Co

What is actually written is (3300/1981)^(1/3) - 1 You should know from school that something to the power (1/3) is the same as the third root. So it is (third root of (3300/1981)) - 1 This way of calculating the dividend growth rate is fully explained in the free lectures.

Thanks,

You are welcome :-)

Dear John, How is the Value of dividends after year 4 is calculated as $50,594,000. can you pls explain. I am referring to the BPP answer.

The growing dividends are from 5 to infinity. We use the dividend valuation model in the normal way (Do = 3.33M, r = 12 %, g = 7.5%). If the first dividend has been in one years time then this would give the MV now. However the first dividend is in 5 years time, which is 4 years later than in 1 years time. So the answer from the formula is a MV 4 years later as well. To get back to a PV 'now' we therefore need to discount for 4 years at 12% in the normal way (0.636 is the 4 year discount factor at 12%). If you need more examples of this, watch the free F9 lectures on the valuation of equity.