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As the manager of a large fund, you are actively looking for new investment opportunities. You have gathered the following information about a private company that looks promising. (a) The company's current earnings for the year are 136.5 pence per share, and the company has just paid out 20% of the earnings as cash dividend to shareholders. The investors require a minimum equity return of 14.6%. (i) Assume that the dividends on the stock are expected to increase by 3.75% per year into the indefinite future. Calculate the fair value of the company's shares using the dividend discount model. As the manager of a large fund, you are actively looking for new investment opportunities. You have gathered the following information about a private company that looks promising. (a) The company's current earnings for the year are 136.5 pence per share, and the company has just paid out 20% of the earnings as cash dividend to shareholders. The investors require a minimum equity return of 14.6%. (i) Assume that the dividends on the stock are expected to increase by 3.75% per year into the indefinite future. Calculate the fair value of the company's shares using the dividend discount model.
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The dividend discount model is a popular approach used to value stocks based o... View the full answer
Related Book For
Investment Analysis and Portfolio Management
ISBN: 978-0538482387
10th Edition
Authors: Frank K. Reilly, Keith C. Brown
Posted Date:
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