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A share will pay a dividend of $3.7 next year, $2.5 two years from now and $2.8 three years from now. The dividend will then
A share will pay a dividend of $3.7 next year, $2.5 two years from now and $2.8 three years from now. The dividend will then grow at the rate of 5% forever, If the required rate of return is 7% p.a., what is the value of the share?
(Hint: Calculate the present value of the next three dividends, calculate the value of the dividend four years from now, calculate the value of the growing perpetuity beginning with the dividend four years from now (as if the growing perpetuity began immediately), discount the value of the growing perpetuity the appropriate number of years to get its value in Year 0, and then add the four present value figures together.)
(Hint: Calculate the present value of the next three dividends, calculate the value of the dividend four years from now, calculate the value of the growing perpetuity beginning with the dividend four years from now (as if the growing perpetuity began immediately), discount the value of the growing perpetuity the appropriate number of years to get its value in Year 0, and then add the four present value figures together.)
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