The following are next three years' projected dividends for APL

Finance Dec 26, 2020

The following are next three years' projected dividends for APL. Starting from 2019, dividends are expected to grow at 5% forever. If the capitalization rate is 14%, calculate P₀.

D₂₀₁₈ = 2.52

D₂₀₁₈ = 3.23

D₂₀₁₉ = 3.94

Expert Solution

Value after 2019=(Dividend for 2019*Growth rate)/(Capitalization rate-Growth rate)

=(3.94*1.05)/(0.14-0.05)

=45.967(Approx)

Hence P₀=Future dividend and value*Present value of discounting factor(rate%,time period)

=2.52/1.14+3.23/1.14^2+3.94/1.14^3+45.967/1.14^3

=38.38(Approx)

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