Question

b) ABC Ltd just announced that it is not expected to pay any dividends for the...

b) ABC Ltd just announced that it is not expected to pay any dividends for the next 4 years. Then the expected dividend per share found in part (a) will be paid to shareholders, which will continue to grow at a constant rate of 20% per annum for another 2 years. After that, the dividend will grow indefinitely at 5% per annum. If the rate of return is 9% per annum, what is the current value of a share in ABC Ltd?

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Answer #1

Solution:-

Let Assume Dividend is part A is 0.30 per share.

To Calculate Current Value of Share-

DPS
Year Dividend
1 0.00
2 0.00
3 0.00
4 0.00
5 0.30
6 0.36
7 0.432
8 0.454

Terminal Value at the end of Year 7 =

Terminal Value =

Terminal Value = $11.35

Current Value of Stock =

Current Value of Stock =

Current Value of Stock = $6.85

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