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You are interested in buying a share that paid its last annual dividend 9 months ago....

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Finance

You are interested in buying a share that paid its last annualdividend 9 months ago. You can assume that the next dividendpayment (3 months from today) will be €1.50. The companyanticipates that dividend growth rates will be 5% annually for thenext two dividends and 2% thereafter. Assuming the firm’s cost ofequity rE is 9%, how much should you pay for the share?

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4.1 Ratings (451 Votes)
Present value of all future dividend payments at cost of equitywould be the price of Share todayWe can    See Answer
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Transcribed Image Text

You are interested in buying a share that paid its last annualdividend 9 months ago. You can assume that the next dividendpayment (3 months from today) will be €1.50. The companyanticipates that dividend growth rates will be 5% annually for thenext two dividends and 2% thereafter. Assuming the firm’s cost ofequity rE is 9%, how much should you pay for the share?

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