Can't Hold Me Back is preparing to pay its ﬁrst dividends.It is going to pay €1.00, €2.50, and €5.00 a share over the next three years, respectively.After that, the company has stated that the annual dividend will be €1.25 per share indeﬁnitely.What is this equity worth to you per share if you demand a 7% rate of return?

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To calculate the value of the equity per share, we use the dividend discount model for a stock with a growing dividend. However, in this case, the dividends for the first three years are specified, and thereafter, a constant dividend is expected. The calculation involves discounting each of the specified dividends and the present value of the perpetuity starting from year 4 onwards, back to the present value at the required rate of return of 7%.The formula for the present value (PV) of each dividend is: $PV = \frac{D}{(1 + r)^t}$Where:- $D$ is the dividend,- $r$ is the rate of return (7% or 0.07),- $t$ is the time in years.For the dividends in years 1, 2, and 3:- $PV_1 = \frac{€1.00}{(1 + 0.07)^1} = €0.9346$- $PV_2 = \frac{€2.50}{(1 + 0.07)^2} = €2.1910$- $PV_3 = \frac{€5.00}{(1 + 0.07)^3} = €4.0992$For the perpetual dividends starting from year 4, we use the formula for the present value of a perpetuity from year 4 onwards: $PV_{perpetuity} = \frac{D}{r}$, where $D$ is the constant dividend (€1.25) and $r$ is the rate of return (7% or 0.07). However, since this perpetuity starts in year 4, we need to discount its value back to the present value:- $PV_{perpetuity} = \frac{€1.25}{0.07} = €17.8571$But this €17.8571 is the value at the beginning of year 4, so we need to discount it back to the present value:- $PV_{perpetuity, present} = \frac{€17.8571}{(1 + 0.07)^3} = €14.4512$Adding up the present values of the dividends and the present value of the perpetuity gives the total value of the equity per share:- Total value = €0.9346 + €2.1910 + €4.0992 + €14.4512 = €21.6760Rounding to two decimal places, the closest value provided in the options is:- €21.78

Can't Hold Me Back Is Preparing to Pay Its ﬁRst