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Hi sir, can u please explain the dividend valuation model used for valuing the company in the equation.
The value is the PV of the future dividends, as always.
For the first 4 years it is just straight discounting and I assume that you are OK with this.
As far as the dividends from year 5 onwards, we use the dividend valuation formula as provided in the exam. However if the first dividends is in 1 years time then the formula gives the PV ‘now’. But here the first growing dividend is in 5 years time (which is 4 years later than in 1 years time), so the result of the formula is also 4 years later i.e. it is the PV in 4 years time instead of ‘now’. So the result of the formula then needs discounting for 4 years in order to arrive at the PV ‘now’.
I do give some examples of this in my free lectures.
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