Calculate the share price of a company the pays a stable dividend of £1.15 pa when the required rate of return demanded by equity investors is 8%.
Use Zero Growth Model:
Replacing the variables with values from the question:
The share price is £14.38.
What will the price be if investors demand 12% to hold these same shares?
Use Zero Growth Model:
The new share price will be £9.58
What will the share price be under both scenarios if dividends grow by a rate of 1% pa?
Using the Gordon Growth Model:
Replacing the variables with values from the question where investor return is 8% and dividend growth is 1%:
The new share price will be: £16.43
Replacing the variables with values from the question where investor return is 12% and dividend growth is 1%:
The new share price will be: £10.45
What will the share price be under both scenarios if dividends decline at a rate of 1% pa?
Replacing the variables with values from the question where investor return is 8% and dividend growth is -1%:
The new share price will be: £12.78
Replacing the variables with values from the question where investor return is 12% and dividend growth is -1%:
The new share price will be: £8.85
Use Zero Growth Model:
Replacing the variables with values from the question:
The share price is £14.38.
What will the price be if investors demand 12% to hold these same shares?
Use Zero Growth Model:
The new share price will be £9.58
What will the share price be under both scenarios if dividends grow by a rate of 1% pa?
Using the Gordon Growth Model:
Replacing the variables with values from the question where investor return is 8% and dividend growth is 1%:
The new share price will be: £16.43
Replacing the variables with values from the question where investor return is 12% and dividend growth is 1%:
The new share price will be: £10.45
What will the share price be under both scenarios if dividends decline at a rate of 1% pa?
Replacing the variables with values from the question where investor return is 8% and dividend growth is -1%:
The new share price will be: £12.78
Replacing the variables with values from the question where investor return is 12% and dividend growth is -1%:
The new share price will be: £8.85