XHZ Ltd has recently paid a dividend of $0.23.This dividend is expected to grow at a constant rate of 3% p.a.The company's equity holders require a return of 11.95% on equity investments.What is XHZ Ltd's current share price?

Question

Quizplus · Accepted Answer

The current share price can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetuity with growth) as follows: P = D0 * (1 + g) / (r - g), where P is the price, D0 is the current dividend, g is the growth rate, and r is the required rate of return. Substituting the given values: P = $0.23 * (1 + 0.03) / (0.1195 - 0.03) = $2.65.

XHZ Ltd Has Recently Paid a Dividend of $0