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beta plc is about to pay a dividend of $0.4 per share . Dividends are growing at the rate of 5% p.a. The shareholders required rate of return is 20% , rate of corporation tax is 25% , what is the current market value per share ?
0.2=0.4(1+0.05)/Po +0.05
which gives us Po $2.8 how is it $3.2 ?The formula gives the ex div market value.
However, because Beta is about to pay a dividend, we need the cum div market value and therefore need to add the dividend about to be paid of $0.40
I do suggest that you watch the free lecture on the valuation of securities (and all of the lectures – they are a complete classroom course 🙂 )
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