CAF-7 · Chapter 9 · Question 1 of 15
A company has recently paid a dividend of Rs. 6 per share, which is expected to grow by 9% per annum in the foreseeable future. The shareholders require an annual return of 19% and the next annual dividend will be paid in one year’s time. According to the Dividend Valuation Model (DVM), what would be the market value of each share?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Rs. 65.4
Explanation
According to DVM: Po = D1 / (Ke - g). First find D1: 6 * 1.09 = 6.54. Then apply the formula: Po = 6.54 / (0.19 - 0.09) = 65.4.
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