question archive KenBoy Limited is expected to pay a Ksh 0
KenBoy Limited is expected to pay a Ksh 0
Subject:FinancePrice:2.84 Bought3
KenBoy Limited is expected to pay a Ksh 0.60 dividend next year. The dividend is expected to grow at a 50 percent annual rate for Years 2 and 3, at 20 percent annually for Years 4 and 5, and at 5 percent annually for Year 6 and thereafter. If the required rate of return is 12 percent, what is the value per share, three years from now?
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Calculation of Value per share, three years from now i.e value of the share at the end of the third year.
formula for that is :
r = rate of return i.e 12%
D1 = dividend for year 1
D2 = dividend for year 2
D3= dividend for year 3
V3 = D1 /(1+r)1 + D2 /(1+r)2+D3/(1+r)3
V3 = 0.6/(1.12)1+0.6+50%/(1.12)2+0.9+50%/(1.12)3
V3 =0.54+0.72+0.96
V3 =2.22
Value of the share at the end of the third year= 2.22
