Question 6:
A company has paid an annual dividend of $0.86 per share. Dividends are expected to grow by 3% per annum for next three years and by 5% per annum onwards for the foreseeable future. Company’s cost of equity is 12%. What is the current market value of ordinary shares?
I got answer of 12.15$ through this method, pls check if its correct.
Step1: Calculate dividends for 3 years by compounding it by 3%
Step 2: Calculate MV of shares in 3 years time, using dividend value of dividend at end of year 3, g is 5% and Ke of 12
Step3: Discount the cash flows at 12% to get present value, which is our market value.
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Business Valuation - Value of shares question
2y ago#1I have no idea where you found this question, but surely there is an answer to it in the same book?
The steps you have listed are completely correct (but I do not have the time to check the final answer :-) )
I found this question from online notes while I was searching for your lecture on this topic. The notes did not had an answer, but if the steps are correct I believe the answer would be correct as well. Thanks for clearly explaining this concept
2y ago#3You are welcome :-)
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