You are thinking of buying shares in Qantas Airways Limited (QAN). You expect the company to...

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You are thinking of buying shares in Qantas Airways Limited (QAN). You expect the company to pay a $0.24 dividend over the next year and you believe this will increase at a rate of 2.5% a year into the future. Assume the required return on equity for QAN is 5.6%. (a) Calculate the valuation for QAN shares today. If the current market price for QAN shares is $6.25, should you buy them? Explain your answer. (4 marks) (b) Say you have an investment horizon of four years. What do you think QAN shares will be worth in four years? (Hint: use t = 4 in the constant growth DDM.) (2 marks) You are thinking of buying shares in Qantas Airways Limited (QAN). You expect the company to pay a $0.24 dividend over the next year and you believe this will increase at a rate of 2.5% a year into the future. Assume the required return on equity for QAN is 5.6%. (a) Calculate the valuation for QAN shares today. If the current market price for QAN shares is $6.25, should you buy them? Explain your answer. (4 marks) (b) Say you have an investment horizon of four years. What do you think QAN shares will be worth in four years? (Hint: use t = 4 in the constant growth DDM.) (2 marks)

Answer rating: 100% (QA)

a To calculate the valuation of QAN shares today we can use the Dividend Discount Model DDM The DDM ... View the full answer