Referencing Styles : Harvard | Pages : 4
Question 1 – Dividend Policy (a) Planet has just announced an
ordinary dividend per share of 20p. The past four years’ dividends per
share have been 13p, 14p, 17p and 18p (most recent dividend last) and
shareholders require a return of 14 per cent. What is a fair price for
Planet’s shares? (b) Planet now decides to increase its debt level,
thereby increasing the financial risk associated with its equity shares.
As a consequence, Planet’s shareholders increase their required rate of
return to 15.4 per cent. Calculate a new price for Planet’s shares.
(c) Outline any problems with using the dividend growth model as a way
of valuing shares