Question
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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