Hayden Ltd intends to make its first dividend payment 4 years(s) from now. It then intends to pay dividends annually thereafter. The company has announced it expects the first three dividends to all be of the magnitude of around 5 cents per share. Subsequent dividends will then be paid out at a set rate of 50% of earnings. Your earnings forecasts for this coming year suggest that $0.20 Earnings per Share (EPS) is the most likely outcome. You are then forecasting EPS growth of around 2.2% p.a. in perpetuity. What would be your valuation of Hayden Ltd's shares, given you require a 15% p.a. return?
Value of share is equal to the present value of all dividend payments
Value = 0.05/(1.15) + 0.05(1.15)2 + 0.05(1.15)3+0.10/(0.15-0.022)/(1.15)3
= 0.05*0.870 + 0.05*0.756+0.05*0.658 + 0.78125*0.658
= $0.6283
Hayden Ltd intends to make its first dividend payment 4 years(s) from now. It then intends...
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