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GROWTH RATE IS 6% BF Ltd anticipates growth over the next few years with the following dividends forecast for the next 4 years. Year Expected

GROWTH RATE IS 6%

BF Ltd anticipates growth over the next few years with the following dividends forecast for the next 4 years.

Year Expected Dividend
1 $2.50
2 $3.86
3 $4.75
4 $6.25
5 ?

After the year 4 dividend is paid, future dividends are expected to grow at a constant growth [depends on the last digit of student ID*] rate indefinitely.

* If the last digit of your student ID is an odd number (for example XXXXXX3), the growth rate is 6%.

If the last digit of your student ID is an even number (including 0) (for example XXXXXX0 or XXXXXX2), the growth rate is 7.5%.

(a) If the required return is 8 %, what is the current share price? (3.5 marks)

(b) What will the price be in seven years time? (1.5 marks)

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