Homework Answers
Answer to Part A:
| Scenario | Dividend next year | Value of share |
| 1 | 2.6125 (=2.75*0.95) | 32.65625 (=2.6125/ 0.08) |
| 2 | 2.75 | 34.375 |
| 3 | 2.805 | 35.0625 |
| 4 | 2.9425 | 36.78125 |
Answer to Part B:
| Scenario | Dividend next year | Value of share |
| 1 | 2.97 (=2.75*1.08) | NA (2.97/(0.08-0.08)) |
| 2 | 3.08 (=2.75*1.12) | 77 (3.08/(0.12-0.08)) |
Part A is based on constant dividend formula while part B is based on Gordon Constant Growth Formula. The answer for Q1 of Part B is NA because the denominator has 0, and is hence undefined.
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problems a and b
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