Question
It is January 2020 and Natural Company has just paid an annual dividend of $0.55 a share. The dividend is expected to increase by 27%
It is January 2020 and Natural Company has just paid an annual dividend of $0.55 a share. The dividend is expected to increase by 27% in January 2021, 22% in January 2022, 15% in January 2023 and thereafter by 4% a year forever from January 2024 onwards. Investors require a 12% per annum return on Natural Company shares.
- What would a share in Natural Company be expected to sell for today (January 2020)?
Draw a timeline showing all the expected cash flows.
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
To calculate the expected price of a share in Natural Company today January 2020 we can use the dividend discount model DDM which states that the present value of all future dividends is equal to the ...
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Step: 3
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Fundamentals Of Corporate Finance
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
5th Edition
0135811600, 978-0135811603
