revision mock

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December 9, 2015 at 3:07 am #289400
kebeori
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Beta plc is about to pay a dividend of $0.40 per share. Dividends are growing at the rate of 5% p.a.. The shareholders’ required rate of return is 20% p.a..
The rate of corporation tax is 25%.
What is the current market value per share?
December 9, 2015 at 8:51 am #289474
John Moffat
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Using the dividend valuation formula on the formula sheet.
Po = ( 40 x 1.05 ) / ( 0.20 – 0.05) = 280c or $2.80
This is an ex div MV. Because they are about to pay a dividend, we need the cum div value which is 2.80 + 0.40 = $3.20
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