You have decided to expand your business and will now value shares. Given the following information, what
Question:
You have decided to expand your business and will now value shares. Given the following information, what is the value of a share in AMS today using the following information:
AMS Ltd will not pay any dividends for the next 7 years;
In exactly 7 years from today, AMS Ltd will pay a dividend of $1.28;
The following four dividends (years 8, 9, 10 and 11) will grow at a rate of 40% per year;
The dividends from year 12 onwards will grow at a more sustainable rate of 3% per year in perpetuity (note: the year 12 dividend will be 3% higher than the year 11 dividend); and,
Dividends are paid annually, and the required rate of return on equity is 6% p.a compounded annually.
Fundamentals of Corporate Finance
ISBN: 978-0321818171
2nd Canadian edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford