Question 3 (20 marks)

You must answer all parts of this question.

Great Potential Plc has made the following dividend payments to its shareholders:

Date	Dividend per share
5 years ago	5.00
4 years ago	5.16
3 years ago	5.40
2 years ago	5.50
Last year	5.65
This year	5.80

The cost of equity (R_E) for Great Potential Plc is 9.2%.

• a.Based on the table given above, calculate the historical growth rate in dividends. (5 marks)
• b.Using the Gordon growth formula, compute the fundamental value of Great Potential Plc. In doing so, assume that the perpetual growth rate in dividends will be equal to the historical growth rate. (5 marks)
• c.Perform sensitivity analysis by varying the growth rate calculated in point (a) up and down by one percentage point. (5 marks)
• d.Could dividend pricing models be used for companies that are currently not paying dividends? Explain your answer. (5 marks)

Your answer to Question 3 should be no more than 300 words.