MNP Ltd. has declared and paid annual dividend of 4 per share. It is expected to grow @ 20% for the next two years and 10% thereafter. The required…
CA Final · Advanced Financial Management · MTP · November 2024
MNP Ltd. has declared and paid annual dividend of 4 per share. It is expected to grow @ 20% for the next two years and 10% thereafter. The required rate of return of equity investors is 15%. Compute the current price at which equity shares should sell. Note: Use PVF upto 4 decimal points and round off calculation upto 2 decimal points.
Suggested Answer and Working Notes:
D0 = 4 D1 = 4 (1.20) = 4.80 D2 = 4 (1.20)² = 5.76 D3 = 4 (1.20)² (1.10) = 6.34 P = D1/(1+ke) + D2/(1+ke)² + D3/(ke-g) TV = D3/(ke-g) = 6.34/(0.15-0.10) = 126.80 P = 4.80/(1+0.15) + 5.76/(1+0.15)² + 126.80/(1+0.15)² = 4.80 x 0.8696 +5.76 x 0.7561 +126.80 x 0.7561 = 4.17 + 4.36 +95.87 = 104.40
Topics: Security Valuation
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