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1. Tellite Ltd, a telecommunication company, did not pay a dividend in the last financial year....

1. Tellite Ltd, a telecommunication company, did not pay a dividend in the last financial year. However, the company has indicated that it expects to earn $1 per share in this financial year and to pay out 20% of these earnings in dividends. Financial analysts expect that Tellite's earnings per share and dividend per share will grow at a rate of 10% a year. The rate of return required by investors has been estimated at 12% per annum. Estimate the present value of the share.

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Answer #1

D1 = 0.20(1) = $0.20

Using Constant Growth Model,

Stock Price = 0.20/(0.12 - 0.10)

Stock Price = $10.00

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