Question
Pelangi Bhd expects dividend payments to common shareholders to grow by 20% for a period of 3 consecutive years. Then, the dividend will grow
Pelangi Bhd expects dividend payments to common shareholders to grow by 20% for a period of 3 consecutive years. Then, the dividend will grow at a constant rate of 10% for the following year forever. The company has recently paid a dividend of RM1.20 to all ordinary shareholders. Based on past financial performance, the beta for Pelangi company is 1.3. The risk-free rate is 8% and the market risk premium is 6%. i) Calculate the value of Pelangi company shares. li) If Pelangi company shares are sold at a price of RM30, will you buy this company's shares? Explain your answer.
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