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Dividend Decision
Financial Management
ICAI book practical problems no 5, Dividend discount model sum is not covered in the lectures sir Can any one explain it
Answers (5)
Price of share = Present value of all dividends paid. Here there are two stream of dividends. First four years and then from 5th Year till infinity. Step - 1 Calculate dividends at end of first four years. Step 2- calculate present value of these dividends. Step 3 - Calculate dividend for year 5. Calculate price at end of Year 4 (P4) using formula => P4 = D5/(Ke-g). Now the price at P4 should be brought to P0 by discounting it by 4 periods.
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