beta plc

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November 19, 2014 at 3:34 pm #211281
DIANA
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hi sir,

can you correct my working on this question

beta plc is about to pay a div of.$0.40 per share. dividend are growing at the rate of 5% p.a. the sh’s required rate of return is 20%. the rate of corporate tax is 25%. what is the current market value per share?

my working:
using DGM formula
($0.4*1.05) / (0.2-0.05) = $2.8
answer is $3.20
November 19, 2014 at 6:51 pm #211363
John Moffat
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The formula gives the ex div market value.

Since they are about to pay a dividend, we need the cum div market value which is 2.80 + 0.40 = 3.20.
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