Question

Abbey Fish Company will pay a R5.00 per share dividend next year. The company

pledges to increase its dividend by 3% per year indefinitely. If you require a 16%

return on your investment, how much will you pay for the company’s shares today.

Answer 1

Dividend=R 5.00

Increase by 3% every year

Required rate ok f return=16%

Price today

$Price =\frac{Divided}{Ke}=\frac{5}{.16}=31.25$