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Analysts estimate that XYZ will pay a dividend amounting to 10 m.u. per share in 12...

Analysts estimate that XYZ will pay a dividend amounting to 10 m.u. per share in 12 months. Due to planned investments, the company does not intend to pay any dividend at the end of the second and the third year. Analysts assume that the company will thereafter be able to pay a fixed dividend amounting to 20 m.u. per share for an indefinite number of years. Price the XYZ share taking into account that market expected rate of return on investments in its shares is 11% p.a. What would be the VALUE OF THE WHOLE EQUITY CAPITAL, if XYZ issued 20,000 shares with the nominal of 10 m.u. each?

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Answer #1

Terminal Value = Dividend in year 4 / Cost of Capital = 20 / 11% = 181.82

PV @ 11% = Present value factor at 11%

Discounted Value = Net Cash Flow * PVF 11%

Value of Whole Equity = Shares O/s * Value of Each Share

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