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This question has two parts. Show all calculations a. Using the Dividend Discount Model formula, and applying hypothetical figures to create a quantitative example, show

This question has two parts. Show all calculations

a. Using the Dividend Discount Model formula, and applying hypothetical figures to create a quantitative example, show that if all other variables in the model remain constant, then the higher the dividend payment, the higher will be the expected price or value of the share. 5 Marks

b. It is 2 June 2022. Gain Ltd has a market capitalisation rate of 19%. Over 2022, its return on equity (ROE) is expected to be 13% and its Earnings per share (EPS) is predicted to be $3.60. If the firms plowback ratio is 30%, what will be its P/E (current or theoretical market share price to expected EPS) ratio? (Show the ratio as a number correct to 2 decimal places.) 5 Marks

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