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