Yesterday BrandMart Supplies paid its ordinary shareholders a dividend equal to R3 per share.BrandMart expects to pay a R5 per share one year from today.After the R5 dividend is paid, the company expects its growth rate will remain constant at 4 percent per year forever.If BrandMart's investors demand a 12 percent rate of return, what should be the current market price of the company's shares?

Question

Quizplus · Accepted Answer

The current market price of the company's shares can be calculated using the Gordon Growth Model (Dividend Discount Model). The formula is P = D1 / (r - g), where D1 is the dividend expected next year, r is the required rate of return, and g is the growth rate. Here, D1 = R5, r = 0.12, and g = 0.04. So, P = 5 / (0.12 - 0.04) = R62.50.

Yesterday BrandMart Supplies Paid Its Ordinary Shareholders a Dividend Equal