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Hell sir Morfat, I sincerely don’t know how to go about this.
The average payout ratio of Abbott Co, over the past five years, has remained at 40%. The latest earnings per share (EPS) of the business is 80cents. The cost of equity is 10%.
Based on the dividend growth model, what will be the theoretical price of each share of Abbott Co?A. $4.40
B. $6.28
C. $8.48
D. $9.32If the payout ratio is 40% then the current dividend must be 40% x 80 = 32c.
Using the rb growth formula, the dividend growth rate is 10% x 60% = 6%
You then use the dividend valuation formula as normal.
Have you watched my free lectures on the valuation of securities?
(The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.)
This is very helpful.
Hello Sir Morfat, i need your help on this question, please help me out:
Luke plans to buy a holiday villa in 5 years’ time for $1.5m cash but of course, he needs to start setting aside an equal amount of funds each year for 5 years starting immediately earning a rate of 10% interest per annum compound.
To the nearest $100, how much does he need to set aside each year?
A. $223,400
B. $245,600
C. $359,800
D. $395,800You must start a new thread when you are asking about a different topic.
This question has nothing to do with the dividend growth model!You must have an answer in the same book in which you found the question. So ask about whatever it is in the answer that you are not clear about and then I will help you.
(This is extremely unusual to be asked in Paper F9. It is really a Paper F2 question!).
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