Question 2 [24 marks]. An investor is considering investing into the shares of a start-up company. The investor's approach to share valuation is to discount future expected dividends at a rate of 5.0% per annum. The company is an online food delivery service that is expected to start paying annual dividends of 6p per share in 3 years' time. Dividends are expected to remain constant for 5 years and then start increasing at a rate of 10% per year for the next 20 years before the dividend growth rate reverts to 3.5% per annum. (a) Show that a fair price for the company's shares is approximately 16.84 per share. [12] (b) Explain what happens to the share valuation if the discounting rate is changed from 5% to 3% per annum. [2] (c) After 7 years the investor sells the company's shares for 22.50 per share. Assuming the investor pays income tax at 40% and the capital gains tax rate is 28% determine the investor's net yield on this investment after tax. [10]