Category Dividend Discount Model Assignments

Dividend Discount Model – Share Price Risk – Technical Analysis

Dividend Discount Model (DDM)
(a) Company A pays an annual dividend of 35p per share. The required rate of return is 11% p.a.

(i) If that level of dividend payment is expected to be constant into the future what is the intrinsic value (or fair price) of the share?
(ii) If the next dividend payment is expected to be 7% higher than the last, and if this rate of dividend growth is expected to be maintained over time, what is the intrinsic value of the share?

(b) Company B is a new company that is currently enjoying rapid growth. It is estimated that dividends will grow at an annual rate of 12% over the next four years. After that, the growth rate will fall to 6% p.a. and remain at that rate. The directors have just paid an annual dividend of £1.25.
Calculate the intrinsic value of the share ...

Read More