Please explain in easy-to-understand and beautiful characters

Activity 3

Mado Ltd is a publically listed company and stopped paying dividends due to the GFC. The directors advised the market that the company is again trading profitably and will recommence paying dividends in 3 years time. The Year 3 dividend will be $0.50 and the following year $0.75. After Year 4 the dividend is projected to increase by 4.7% indefinitely. The required rate of return for Mado Ltd is 14.25%.

a) Calculate a fair price for one Mado share today and draw a timeline

b) Explain how and why this would change if the required rate of return increased to 20% - NO CALCULATION NEEDED.

DISCUSSION / THEORY QUESTION

How would the price of the share change if annual dividends were slightly smaller ? Why ?