Sugar plc has just paid a dividend of 3.50. The company is experiencing rapid growth and...

  

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Sugar plc has just paid a dividend of £3.50. The company is experiencing rapid growth and expects dividends to grow at 20 per cent per year for the next 4 years before levelling off to 7 per cent in perpetuity. The required return on Sugar plc's equity is 14 per cent. Required: i. Calculate the current share price of Sugar plc. Explain your workings. ii. iii. 20 Marks Explain why dividend growth models depend solely on dividend projections to value equities. Is that a problem in practice? 10 Marks Explain and critically evaluate the validity of the main assumptions underpinning the two-stage dividend growth model. How do these assumptions affect the practical application of the two-stage dividend growth model? Sugar plc has just paid a dividend of £3.50. The company is experiencing rapid growth and expects dividends to grow at 20 per cent per year for the next 4 years before levelling off to 7 per cent in perpetuity. The required return on Sugar plc's equity is 14 per cent. Required: i. Calculate the current share price of Sugar plc. Explain your workings. ii. iii. 20 Marks Explain why dividend growth models depend solely on dividend projections to value equities. Is that a problem in practice? 10 Marks Explain and critically evaluate the validity of the main assumptions underpinning the two-stage dividend growth model. How do these assumptions affect the practical application of the two-stage dividend growth model?

Answer rating: 100% (QA)

Answer 1 The current share price of Sugar plc is 2571 To calculate the current share price we need to discount the expected future dividends at the re... View the full answer