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Dear sir,
I have watched your lecture on valuation of equity and did not understand example 7. Could you pls explain to me again the reasoning behind the answer?Thanks!
The market value is the present value of future dividends discounted at the shareholders’ required rate of return.
Using the dividend valuation formula gives the PV when dividends are growing assuming that the first of the ‘growing’ dividends is in one year time. If the first of the ‘growing’ dividends is in 3 years time, then it is starting 2 years later than in 1 years time. So the answer using the formula will be 2 years later as well and therefore needs discounting for 2 year.
Watching the series of lectures on this chapter again will help you.
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