You are considering the purchase of an ordinary share that just paid a dividend of R2.00.You expect this share to have a growth rate of 30 percent for the next 3 years, then to have a long-run normal growth rate of 10 percent thereafter.If you require a 15 percent rate of return, how much should you be willing to pay for this share?

Question

Quizplus · Accepted Answer

The correct answer is A because the share is expected to have a high growth rate in the next 3 years, which will lead to a higher dividend payout. This will make the share more attractive to investors, who will be willing to pay a higher price for it.

You Are Considering the Purchase of an Ordinary Share That