Calculate the current share price of the firm

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Question - Maple Plc has never paid a dividend, however it has just announced that it will pay an annual dividend of 5p next year, 7p the year after and 9p the year after that. From then on the firm expects dividends to grow at 4% per year. Earnings per share next year will be 10p. The firm has 5 million shares currently in issue and beta of the firm's shares is 1.2. The current riskless rate in the economy is 3% and the expected return on the stock market is 8%.

a) Calculate the expected return (i.e. cost of capital) for equity holders in Maple Plc.

b) What will the plowback ratio and pay-out ratio of the firm be next year?

c) Calculate the current share price of the firm.

Reference no: EM132961711

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