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Question 1

Multiple Choice

Confidence Level

Low Medium High Mastered

Briston Telecom pays an annual dividend to shareholders and recently issued a dividend of CAD2.60 per share. Analysts project that this dividend will grow at a constant rate of 4% per year in perpetuity. If investors require a return of 9%, the expected value of one share of Briston Telecom is closest to:

CAD54.08

CAD51.84

CAD48.00

Explanation

This is a Dividend Discount Model (DDM) question using the Gordon Growth Model:
p _{0}  =   \frac{D_{1}}{r - g}Where:
D0 = 2.60 D0 = 2.60
g = 4% = 0.04g = 4
r = 9% = 0.09r = 9
Calculate next year’s dividend:
D1​ = D0​ × (1+g) = 2.60 × 1.04 = 2.704
Use the Gordon Growth Model Formula to solve:
P_{0} = \frac{D_{1}}{r - g} = \frac{2.704}{0.09 - 0.04}  =  54.08

Equity Valuation: Gordon Growth Model & Dividend Discount Techniques

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Question 1

Explanation

p _{0} = \frac{D_{1}}{r - g}

P_{0} = \frac{D_{1}}{r - g} = \frac{2.704}{0.09 - 0.04} = 54.08

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Equity Valuation: Gordon Growth Model & Dividend Discount Techniques

Test Options

Reset All Confidence Levels

Creating Copy

Question 1

Explanation

p _{0} = \frac{D_{1}}{r - g}

P_{0} = \frac{D_{1}}{r - g} = \frac{2.704}{0.09 - 0.04} = 54.08

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