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A company has just paid a dividend of $0.23 per share,
Shareholders are expecting the dividend to remain at $0.23 per share next year but to increase at an average rate of 3% per annum there after,
Shareholders required rate of return is 12%,tax 25%.Calculate current market value of share?
Please show working I can’t understand how to deal with itYou use the dividend valuation formula given on the formula sheet.
The only ‘trick’ is the Do (1 + g) in the formula is actually the dividend in 1 years time. Usually it is the current dividend plus the growth, but in this question it is actually 23c in 1 years time.
So Po = 23 / (0.12 – 0.03) = 256 c (or $2.56)
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