Answer:
45.011
Explanation:
The current market value of a share is the present value of future dividends in perpetuity, discounted at the cost of equity (i.e. the return required by the providers of equity capital).
Based on the above discussion the share price shall be calculated as:
Present value of year 1 dividend=1.72(1+9%)^-1=1.58
(1.32*1.30=1.72)
Present value of year 2 dividend=1.89(1+9%)^-2=1.591
(1.72*1.10=1.89)
Present value of year 3 dividend=1.98(1+5%)^-3=1.71
(1.89*1.05=1.98)
Present value of all dividends after year 3=(d(1+g)/ke-g)(1+ke)^-3=(1.98(1+5%)/9%-5%)(1+9%)^-3=40.13
Current market value of share=45.011
(1.58+1.591+1.71+40.13)
