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Hi Sir,
This is sample question paper 2017
The ordinary shares of Tufa Co have a nominal value of $0·50 per share, an ex dividend market price of $7·07 per
share and a cum dividend market price of $7·52 per share. The dividend for 20X7 will be paid in the near future.
Dividends paid in recent years have been as follows:Year 20X6 20X5 20X4 20X3
Dividend ($/share) 0·43 0·41 0·39 0·37
Corporation tax at a rate of 30%.What is the dividend growth rate?
Answer:
Dividend growth rate (%) 5·02 [(0·45/0·37)0·25 – 1]I did not understand how they arrived at this rate?
Can you please give me clarification on this!
If you watch my lectures on the valuation of equity, then you will see that I explain in detail how to calculate the dividend growth rate from past dividends. Sorry, but you cannot expect me to type out all my lectures here (and there is no point in attempting past exam questions without studying first) 🙂
The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
I got the answer. 🙂 Actually, I had already watched your lecture. But in this question dividend is growing at the same amount which is 0.02
If I calculate this with this method (0.39-0.37)/0.37=5.4% is this also correct approach apart from g=4?.45/.37-1=5.15% ?Dividend growth rate (%) 5·02 [(0·45/0·37)0·25 – 1] in this answer why it is power 0.25? Does it mean 4root=0.25 ?
It is a coincidence that the growth rate over the last year is the same – that is not the method you should use.
Yes – you should know from school that taking something to the power of 1/4 is the same as taking the fourth root.
(Similarly something to the power of 1/2 is the same as taking the square root)
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