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Accompany just paid Dividend $0.23 AND SHAREHOLDER EXPECTING TO REMAIN SAME FOR THE NEXT YEAR BUT INCREASE 3% PA THEREAFTER
REQUIRED RATE OF RETURN IS 12% CORPORATE TAX IS 30%
WHAT IS THE CURRENT MARKET SHARE ?Please do not write in capital letters.
Also, the question does not ask for the market share – it asks for for the market price of a share.
The ‘trick’ in this question is that the Do(1+g) on the top of the formula is in fact the dividend in 1 years time. Usually it is the current dividend + growth, but in this question it is an actual 23c in 1 year (and not 23 + growth)
Therefore the MV = 23 / (0.12 – 0.03) = 256c or $2.56
Many thanks. I found this question interesting. My solution was different though:
I deducted 0.23 from the increase of 3 to give a growth rate of 2.77%
Thus: 0.23(102.77%)/12%-2.77%
0.236371/9.23%
=$2.56
Is my solution correct, or just a coincidence?
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