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B Plc is about to pay a dividend of $0.40 per share.Dividends are growing at the rate of 5% p.a.The shareholders required rate of return is 20%p.a.The corporation tax is 25%.What is the current market value per share?
ans is $3.2 per share howIf you use the dividend valuation formula, you get (40 x 1.05) / (0.20 – 0.05) = 280c ($2.80)
However the formula gives the ex-div value.
The question says that they are about to pay a dividend, so we need the cum div value, which is 2.80 + 0.40 = $3.20(The free lecture on the valuation of shares will help you)
A project has requires an investment of 25000 and is expected to generate a cash inflow of 8000 a year for 5 years (with the first receipt in one time )
The cost of capital is 10%What is the sensitivity to change of the cash inflow each year ?
You calculate the NPV of the project (which here is 5328).
You calculate the PV of the cash inflows (which here is 30328).
The sensitivity is the NPV as a percent of the PV of the inflows.
i.e. 5328 / 30328 = 17.57%(For a full explanation you really should watch the free lecture on investment appraisal under uncertainty where it is explained and where I work through various examples)
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