Halliford’s dividend forecast (g = retention rate × return on new investment)
Year |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
Earnings |
|||||||
1).EPS Growth Rate (vs. prior yr) |
23.80% |
23.80% |
11.186% |
11.186% |
4.284% |
||
2). EPS |
$3.174 |
$3.9294 |
$4.8646 |
$5.4088 |
$6.0138 |
$6.2714 |
|
Dividends |
|||||||
3). Retention Ratio |
100% |
100% |
47% |
47% |
18% |
18% |
|
4). Dividend Payout Ratio |
0% |
0% |
53% |
53% |
82% |
82% |
Dividends(2 x 4) $0 $0 $2.5782 $2.8666 $4.9313 $5.1426
From year 5 on, dividends grow at constant rate of 4.284%. Therefore,
P(5) = D6 / (r - gC) = $5.1426 / (10.5% - 4.284%) = $5.1426 / 0.06216 = $82.73
P(0) = [D3 / (1 + r)3] + [D4 / (1 + r)4] + [(D5 + P5) / (1 + r)5]
= [$2.5782 / 1.1053] + [$2.8666 / 1.1054] + [($4.9313 + $82.73) / 1.1055]
= $1.91 + $1.92 + $53.21 = $57.04
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