The required rate of return on the shares in the firms identified in parts
The required rate of return on the shares in the firms identified in parts
Subject: Business   / Finance
Question
The required rate of return on the shares in the firms identified in parts (i) to (ii) is 15% per annum (discount rate). Calculate the current share price in each part.
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i. The current dividend per share in Firm B is 80 cents. This dividend is expected to grow at 5% per annum indefinitely.
ii. Current dividend per share in Firm C is 60 cents. The dividend has been growing at 12% per annum in recent years, a rate expected to be maintained for a further 3 years. It is envisaged that the growth rate will then decline to 5% per annum and remain at that level indefinitely.