Question
Tinker paid a dividend of 250,000 this year. The current return to shareholders of quoted companies in the same industry as Tinker is 12%, although
Tinker paid a dividend of 250,000 this year. The current return to shareholders of quoted companies in the same industry as Tinker is 12%, although its expected that an additional risk premium of 2% will be applicable to Tinker, being a smaller unquoted company. Compute the expected valuation of Tinker if:
a. The current level of dividend is expected to continue into the foreseeable future
b. The dividend is expected to grow at a rate of 4% into the foreseeable future
c. The dividend is expected to grow at a 3% rate for three years and 2% afterwards.
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