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Business valuation using DGM

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Business valuation using DGM

  • This topic has 2 replies, 2 voices, and was last updated 1 year ago by IAW3005.
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  • May 1, 2024 at 9:04 pm #704787
    Shakurs
    Participant
    • Topics: 2
    • Replies: 0
    • ☆

    Cant Co has a cost of equity of 10% and has forecast its future dividends as follows: Current year: No dividend Year 1: No dividend Year 2: $0.25 per share Year 3: $0.50 per share and increasing by 3% per year in subsequent years What is the current share price of Cant Co using the dividend valuation model?

    May 2, 2024 at 6:45 am #704804
    IAW3005
    Moderator
    • Topics: 4
    • Replies: 1597
    • ☆☆☆☆☆

    What is your question please?
    Where is the question from?
    Have you tried to attempt it?

    May 2, 2024 at 6:48 am #704805
    IAW3005
    Moderator
    • Topics: 4
    • Replies: 1597
    • ☆☆☆☆☆

    Share price = (Dividend in Year 2 x (1 + Growth Rate)) / (Cost of Equity – Growth Rate)
    Share price = ($0.25 x (1 + 0.03)) / (0.10 – 0.03= $3.68

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