Financial management revision question and answer

The dividend per share of Mavazi Limited as at 31 December 2000 was Sh.2.50.
The company‟s financial analyst has predicted that dividends would grow at
20% for five years after which growth would fall to a constant rate of 7%. The analyst has also projected a required rate of return of 10% for the equity market. Mavazi‟s shares have a similar risk to the typical equity market.

Required:
The intrinsic value of shares of Mavazi Ltd. As at 31 December 2000.
answer
Compute the expected DPS at end of each period and discount at 10% rate. Expected DPS = do (1 + g) n

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