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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › jun 2012 corhig co. (b)
sir, question is to calculate current cost of equity and using this value calculate the value of the company using the dividend valuation model.
Ke can be calculated using CAPM and i got it as 12% but i am stuck with growth of dividends for calculating the value of the company, its given like:
year earnings($000) dividends($000)
1 3000 nil
2 3600 500
3 4300 1000
how can i calculate growth of dividends in this case?
The question specifically says that they expect future dividends to increase after year 3 at 3% per year, and since we already know what the dividends will be in years 1, 2 and 3, growth is irrelevant as far as these are concerned. It is only the growth after year 3 that is of concern, and you are given that.
You really should watch my free lectures on the valuation of equity, because I explain (with examples) how we do it, including how to deal with examples such as this.
The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.