State the price of the share for the year t, if the rate of growth of the firm is 10%, EPS and DPS for…
Under Myron Gordon's constant-growth dividend valuation model, the current price of a share at year t is Pt = Dt+1 / (ke - g). Substituting expected dividend per share Dt+1…
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State the price of the share for the year t, if the rate of growth of the firm is 10%, EPS and DPS for the year t+1, are ₹ 3 and ₹ 2 respectively and the investors’ required rate of return is 20%.
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Correct answer B
Under Myron Gordon's constant-growth dividend valuation model, the current price of a share at year t is Pt = Dt+1 / (ke - g). Substituting expected dividend per share Dt+1 = ₹ 2, required rate of return ke = 20% (0.20), and growth rate g = 10% (0.10) gives Pt = 2 / (0.20 - 0.10) = 2 / 0.10 = ₹ 20.
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UGC NET Management