Question

In: Finance

What is the value per share be of a company with the following dividends? Dividend just...

What is the value per share be of a company with the following dividends?

Dividend just paid is $1.35

Exp Div Growth rates 13.50%
12.25%
9.50%
10.60%
8.75%
  
                
ROE = 14.10%
Plowback Rate = 42.00%
US T-Bill = 1.70%
Beta = 0.87
Mkt Risk Premium = 8.40%

Solutions

Expert Solution

Growth rate = ROE*Plowback

=14.1%*42% = 5.922%

Required rate = Rf+Beta*(Rp)

= 1.7%+0.87*8.4%

=9.008%

The dividend and horizon value is as below

Year Dividend per share Horizon value Net cash flows
1 1.53225 1.53225
2 1.719950625 1.719951
3 1.883345934 1.883346
4 2.082980603 2.082981
5 2.265241406 77.75078 80.01602
6 2.399389002

Price per share = D1/(1+k)+ D2/(1+k)^2 +... (Dn+Pn) /(1+k)^n

= 1.53225/1.09008^1 +1.719951/1.09008^2 + 1.883346/1.09008^3 + 2.082981 /1.09008^4 +80.01602 /1.09008^5

= $ 57.77

WORKINGS


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