Question
Bamboo Berhad has a 13% required rate of return. It does not expect to initiate dividends for 10 years, at which time it will pay
Bamboo Berhad has a 13% required rate of return. It does not expect to initiate dividends for 10 years, at which time it will pay RM5 per share in dividends. At that time Bamboo Berhad expects its dividends to grow at 5% forever. i) Estimate Bamboo Berhad's share price in 10 years (P10) if its dividend at the end of year 10 is RM5.00. Determine Bamboo Berhad share price today if you desire a rate of return of 13%. ii) Repeat the problem, but replace the 10 years with 30 years and compare the two sets of prices. Describe the relationship between the number of years before you receive dividends and today's price. (10 marks)
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