Question
Black Sabbath Engineering Ltd. has current dividend per share of 10 which has been growing at an annual rate of 8%. The company is expecting
Black Sabbath Engineering Ltd. has current dividend per share of 10 which has been growing at an annual rate of 8%. The company is expecting significant technical improvement and cost reduction in its operations, which would increase growth rate to 12%. Black Sabbath's capitalization (cost of capital) rate is 15%. Calculate
I. the value of the share assuming the current growth rate
II. the value of the share of the company achieves with technical improvement and cost reduction
III. Does the price calculated in (ii) make logical sense? Why?
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