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A firm expects to make the following dividend payments over the next four years:

Year

One

Two

Three

Four

Dividend

$1.00

$2.55

$3.26

$4.99

This firm expects a more normal and reasonable growth of 4% in the years beyond the fourth year. Determine the price of the equity shares today if the required return is 12.75%.

Discuss the advantages of this model over the simpler Dividend Discount Model. Discuss methods used to determine the growth rate in dividends.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M942967

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