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Regal Resources have ordinary shares outstanding and is planning to pay a dividend of $2.10 this...

Regal Resources have ordinary shares outstanding and is planning to pay a dividend of $2.10 this year. Regal expects this dividend to grow at a constant rate of 4%. If your required return is 10%, what is the price of Regal shares now? Today, on the sharemarket Regal Resources shares are trading at $40, should you buy them? Why? P = $35.00. Should not buy, the shares are overvalued. Plz, list the formula

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Answer #1

Price using dividend discount model = Next year dividend / required rate - growth rate

Price = 2.1 / 0.1 - 0.04

Price = 2.1 / 0.06

price = $35.00

Shares are overvalued as the current market price of $40 is more than the intrinsic value of $35. We should NOT buy the shares.

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