AnonymousStudent
New member
- Joined
- May 23, 2019
- Messages
- 2
The following is known of the company AB Finance:
The current price per share is 8.64 USD, which corresponds to the value given by the Constant Dividend Growth Model.
Yesterday the company paid a dividend of 0.4 USD per share.
The dividend is expected to have a constant growth of 8 % per year.
The risk-free rate is 4 %, and the market risk premium is 5.5 %.
The management is considering a reduction in the dividend next year in order
to enable the company to invest more and enhance growth of the company.
The dividend next year will then according to their plan be 0.3 USD/share, but
the growth in dividends is increased to 10 % annually.
What will be the new share price, assuming that we still have the same equity
cost of capital?
Can anyone give me a hint on how to calculate this?
Can I do the following
4(1+0.08) / (r-0.08) = 8.64
The equity cost of capital r = 13%
New share price: 0.3*1.1 / (0.13-0.1) = 11
Is this correct...?
The current price per share is 8.64 USD, which corresponds to the value given by the Constant Dividend Growth Model.
Yesterday the company paid a dividend of 0.4 USD per share.
The dividend is expected to have a constant growth of 8 % per year.
The risk-free rate is 4 %, and the market risk premium is 5.5 %.
The management is considering a reduction in the dividend next year in order
to enable the company to invest more and enhance growth of the company.
The dividend next year will then according to their plan be 0.3 USD/share, but
the growth in dividends is increased to 10 % annually.
What will be the new share price, assuming that we still have the same equity
cost of capital?
Can anyone give me a hint on how to calculate this?
Can I do the following
4(1+0.08) / (r-0.08) = 8.64
The equity cost of capital r = 13%
New share price: 0.3*1.1 / (0.13-0.1) = 11
Is this correct...?