You are trying to value Blackmore's share today (End of 2019). Assume the current price of the share in the stock market is $88.16 and that you would like to hold the investment for 5 years. Assume that the total dividend paid by Blackmores in the 2019 year was paid as a lump sum (at once) today. You also estimate that for the next two years dividends will grow respectively at 30%, 25% per year. After this (starting in time 3) you estimate dividends will grow at a constant rate of 6% forever. Assume that today the Australian treasury notes 2.5%, the market risk premium is 8% and the beta of Blackmores is 1.16. Based on this price would you purchase the share? Why or why not?

Answer rating: 100% (QA)

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