Prey Co – Summary statements of financial position
$000s
2001 2 3 4 5 6
Profit after tax (10) 20 60 130 140 156
Dividends paid – 10 30 65 70 78
What growth rate should be used if estimating the value of Prey Co using the
dividend valuation model? Give your answer as a percentage to 1 dp.
answer: The best indicator of future growth can be calculated using years 20X4 to 20X6 (20X3
was a transition year and the impact of the boost in demand was only partially seen).
the have taken geomatric rate from 4 -6 (reason given above) but actually v shud take from 1 -6 ryt?
and if similar question is given fro exam, how will we know from which figure v have to take?
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prey co
4y ago#1We are always using past growth as an estimate of future growth. Since something obviously happened in 20X4 which made the profit and the dividend increase a lot then the growth rate since then is surely the best basis to use as an estimate of the likely future growth.
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