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Hello sir,
Valuing the company using dividend growth model i don’t understand how the 18.7% was calculated using the formula. Is it (3300/1981)1/3-1 ? Can you help John pleaseWhat 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.
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.
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