Homework Answers
Time 0 : Dividend = $ 4.40
Year 1 growth = 0%
Year 2 growth = 4%
Year 3 growth = 4%
Year 4 growth = 21%
Year 5 onwards growth = 11%
Required Rate of return (r) = 14%
based on dividend growth till year 5 = 4.40 *(1.04)*(1.04)*(1.21)*(1.11) ----assuming growth translates to growth in dividends.
Dividend year 5 = $ 6.39
Growth steady = 11%
Return (r) expected = 14%
Share value = D / (r-g) = 6.39/ (14%-11%) = 6.39/3% = $ 213
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