In: Finance
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%
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