The earnings of a company have been growing at 15 percent over the past several years and are expected to increase at this rate for the next 7 years and thereafter , at 9 percent in perpetuity . It is currently earning Rs 4 per share and paying Rs 2 per share as dividend . What shall be the present value of the share with a discount rate of 12 percent for the first seven years and 10 percent thereafter
Added by Kenneth H.
Step 1
Calculate the dividends for the first 7 years with a growth rate of 15%: Year 1: $D_1 = 2 \times (1 + 0.15) = 2 \times 1.15 = 2.3$ Year 2: $D_2 = 2.3 \times (1 + 0.15) = 2.3 \times 1.15 = 2.645$ Year 3: $D_3 = 2.645 \times (1 + 0.15) = 2.645 \times 1.15 = Show more…
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