Question

Arddy Bhd has conducted their meeting last week. The company will pay a dividend of RM2.20 per share at the end of this year and RM2.30 per share next year. Based on your analysis, you expect the company stock price will increase to RM38.50 in two years. Assuming that the Arddy Bhd’s equity cost of capital is 10%. Required:

(i) Calculate the price that you would be willing to pay for a share of Arddy today, if you planned to hold the stock for two years.

(ii) Calculate the price that you would be willing to pay for the same share if you intend to hold the stock for the long-term

Answer 1

Answer i) The value of share

V$=\frac{D_1}{(1+r)}+\frac{D_2+S_p}{(1+r)^2}$

V $=\frac{2.20}{(1+0.1)}+\frac{2.30+38.50}{(1+0.1)^2}$ = $ 35.72

Answer 2) For holding long term

V $=\frac{D}{(r)}=\frac{2.20}{0.1}$ = $ 22.