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Dividend decision

Financial Management

How to approach this sum. What to do?

Miradevi S

CA Final

★ 16K+

26-Sep-21 16:14

668

Answers (19)

First we need to calculate price of the share for first 4 years using P0=D1/1+Ke+ D2/(1+Ke)^2+D3/ (1+Ke)^3+D4/(1+Ke)^4. From year 5 as growth becomes constant for indefinite period, so calculate terminal value using D5/Ke-g. Then discount it using TV/ (1+Ke)^4. You will get the intrinsic price of the share by adding those two values. Simply by using this formula you will get the price P0=D1/1+Ke+ D2/(1+Ke)^2+D3/ (1+Ke)^3+D4/(1+Ke)^4.+TV/(1+Ke)^4

vishwam mandepudi

Qualified CA

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27-Sep-21 10:37

OK thank you

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Miradevi S

CA Final

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27-Sep-21 11:21

vishwam mandepudi

TV means terminal value

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Miradevi S

CA Final

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27-Sep-21 14:19

120 is D0 right?

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Miradevi S

CA Final

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27-Sep-21 14:27

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Miradevi S

TV means terminal value

yes

vishwam mandepudi

Qualified CA

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27-Sep-21 14:28

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Miradevi S

120 is D0 right?

Yes

vishwam mandepudi

Qualified CA

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27-Sep-21 14:29

Thanks but D2 means D1s value?

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Miradevi S

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27-Sep-21 14:42

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Miradevi S

Thanks but D2 means D1s value?

Compute D1 by D0(1+g), D2 by D1(1+g) and D3 by D2(1+g) and the growth rate given is 15%

vishwam mandepudi

Qualified CA

★ 2K+

27-Sep-21 14:55

Thank u so much

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Miradevi S

CA Final

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27-Sep-21 19:19

For D5= D4(1+g) g=5% but For Ke - g , g=15%. or 5%

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Miradevi S

CA Final

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27-Sep-21 19:24

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Miradevi S

For D5= D4(1+g) g=5% but For Ke - g , g=15%. or 5%

vishwam mandepudi

Qualified CA

★ 2K+

27-Sep-21 19:35

But here for numerator 5%for denominator 15%

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Miradevi S

CA Final

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27-Sep-21 19:56

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Miradevi S

But here for numerator 5%for denominator 15%

That is wrong..please take 5% and solve

vishwam mandepudi

Qualified CA

★ 2K+

27-Sep-21 20:21

OK for both numerator and denominator 5%only right

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Miradevi S

CA Final

★ 16K+

27-Sep-21 20:49

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Miradevi S

OK for both numerator and denominator 5%only right

Right

vishwam mandepudi

Qualified CA

★ 2K+

27-Sep-21 21:06

OK thank you so much for clarying my big doubt

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Miradevi S

CA Final

★ 16K+

27-Sep-21 21:18

Is this correct

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Miradevi S

CA Final

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27-Sep-21 21:36

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Miradevi S

Is this correct

Yes. Correct

vishwam mandepudi

Qualified CA

★ 2K+

28-Sep-21 10:57

OK thank you so much for clarifying my doubt

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Miradevi S

CA Final

★ 16K+

28-Sep-21 11:56