The Required Rate Of Return On The Shares In The Firms Identified In Parts

The required rate of return on the shares in the firms identified in parts (i) to (ii) is 15% per annum (discount rate). Calculate the current share price in each part. i. The current dividend per share in Firm B is 80 cents. This dividend is expected to grow at 5% per annum indefinitely. ii. Current dividend per share in Firm C is 60 cents. The dividend has been growing at 12% per annum in recent years, a rate expected to be maintained for a further 3 years. It is envisaged that the growth rate will then decline to 5% per annum and remain at that level indefinitely.

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