Market value per share in 2 year, cost of capital question page 95

Ddrice9910y ago

Hi John You said for part c of question 6 that you would expect the market value in 2 years to be the current market value growing at the same rate that dividends grow by ie $2.80 x 1.0675^2 =$3.19 Is there a way to get to that figure using the formula in the chapters ie P0 =.... I tried to have a go at it but I got nowhere. If it's not that simple it's ok, I just thought it would improve my understanding if I could work it out Cheers Hugh

John MoffatTutor10y ago#1

If you use the dividend growth formula and let Do be the dividend in two year time (which is the current dividend x 1.0675^2) then you will get the market value in 2 years time, which will be $3.19 as well :-)

Ddrice9910y ago#2

Thanks got it! :) Po = 20*(1.0675^2)*(1.0675)/(0.14375-0.0675)=319.75

John MoffatTutor10y ago#3

Great :-)

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