Question

Wayne’s Nurseries Ltd. has just paid a dividend of $0.60 per share on its ordinary shares....

Wayne’s Nurseries Ltd. has just paid a dividend of $0.60 per share on its ordinary shares. The company has been in business for five years, and expects that the dividend will grow at 10% for the next two years, after which it is expected to grow at 4% indefinitely. You consider that the required rate of return for shares in this company is 15% per annum. The value of one share in Wayne’s Nurseries Ltd is approximately:

a) $8.22

b) $6.31

c) $5.29

d) $7.48

Thank you for your help in advance!

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Answer #1

The stock price today is equal to the present value of future dividends.

The value of one share = $6.31

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