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E ltd has just paid dividend of 30ca share. dividend growth has been maintained at 3% in recent years. e ltd has cost of capital 10%. it intends to conserve cash by not pauinding dividend in next 2 years then pay dividend of 45c at end of years 3 and achieving dividend growth 4%thereafter.
what will be current share price ?
can you plz explain me this qstn how to solve . ans is 1.79$ but i dont understand .
You used the dividend growth formula on the growing dividend.
However because the dividends start 2 years late (and time 3 instead of at time 1) you need to discount the result for 2 years at 10%.
I work through a very similar example in my free lectures on the valuation of securities. You really cannot expect me to type out my lectures again here.
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