(a) Bupe Trading has just paid a dividend of K20 per share. It is expected that...

 

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(a) Bupe Trading has just paid a dividend of K20 per share. It is expected that this dividend will grow at a rate of 12% for the next two years but loan redemption obligations will force the company to suspend payments in years 3 and 4. A dividend of K30 will be paid in year 5 after which the growth rate in dividends will be 8 percent forever. The company requires a 10% return on its investments. What is the price of this stock today? (10 marks) (a) Bupe Trading has just paid a dividend of K20 per share. It is expected that this dividend will grow at a rate of 12% for the next two years but loan redemption obligations will force the company to suspend payments in years 3 and 4. A dividend of K30 will be paid in year 5 after which the growth rate in dividends will be 8 percent forever. The company requires a 10% return on its investments. What is the price of this stock today? (10 marks)