(B) A prospective investor is evaluating the share of Premier Foods Ltd, whose recent dividend per...

 

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(B) A prospective investor is evaluating the share of Premier Foods Ltd, whose recent dividend per share was Rs. 3 resulting in a dividend payout ratio of 40%. The investor is considering three scenarios. 1st Scenario: Under this scenario, the company will maintain to pay its current dividend per share without any change. 2nd Scenario: The dividend will grow at an annual rate of 6 per cent in perpetuity. 3rd Scenario: The dividend will grow at a high rate of 12 per cent per year for the first four years; and thereafter, at a constant rate of 6 per cent perpetually. If the investors' required rate of return is 12 per cent, calculate the intrinsic value of the share under each of the scenarios. (B) A prospective investor is evaluating the share of Premier Foods Ltd, whose recent dividend per share was Rs. 3 resulting in a dividend payout ratio of 40%. The investor is considering three scenarios. 1st Scenario: Under this scenario, the company will maintain to pay its current dividend per share without any change. 2nd Scenario: The dividend will grow at an annual rate of 6 per cent in perpetuity. 3rd Scenario: The dividend will grow at a high rate of 12 per cent per year for the first four years; and thereafter, at a constant rate of 6 per cent perpetually. If the investors' required rate of return is 12 per cent, calculate the intrinsic value of the share under each of the scenarios.

Answer rating: 100% (QA)

1st scenario Constant dividend Dividend per share Rs 3 Required rate of return 12 Int... View the full answer