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Mr John
I am having some confusion in question 4 part a. I could not grasp what are the question is about? Could you explain for me?
Part (a) of the question wants you to use the dividend valuation formula that is given in the exam in order to value the shares.
You will know from our free lectures (I assume that you have watched our lectures) that the market value of a share is the present value of the future dividends.
Here, you know what the dividends will be from time 3 onwards – both the dividend in 3 years and the growth rate. You also know the shareholders required return from the last line of the question, and so you can use the formula to get a value at time 2. Then you have to discount for the two years to get to the current present value.
If you haven’t watched our lectures then I do suggest that you do – they are a complete course and cover everything you need to be able to pass F9 well 🙂
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