Your brokerage firm has just sent you details of a new share offer in a chocolate business.
Question:
Your brokerage firm has just sent you details of a new share offer in a chocolate business. They have indicated that the business just paid its annual dividend of $2.24 per share. They believe dividends are expected to grow at 2% p.a. a. If you wish a return of 6% p.a. on your investment, what is the maximum price you would be willing to pay for each share? b. Your broker tells you that the business has priced its shares at $142. What annual rate of growth does the company expect its dividends to grow at? (Assume a market valuation rate of 6% p.a. (2 d.p.) *Include with both answers a fully labelled cash flow diagram (drawn from the company\'s perspective), your chosen valuation date and equations of value.
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Quantitative Analysis for Management
ISBN: 978-0132149112
11th Edition
Authors: Barry render, Ralph m. stair, Michael e. Hanna