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Calculate the present value of the dividends

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Tel Pty Ltd is expanding very fast and expects to grow at a rate of 25 per cent for the next 4 years. The company recently declared a dividend of $3.60 but does not expect to pay any dividends for the next 3 years. In year 4, they intend to pay a $5 dividend and thereafter grow it at a constant-growth rate of 6 per cent. The required rate of return on such shares is 20 per cent.

a. Calculate the present value of the dividends during the fast growth period.

b. What is the price of the share at the end of the fast growth period (P4)?

c. What is the share price today?

d. Would today's share price be driven by the length of time you intend to hold the share?

Reference no: EM133233565

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