Text plc's current dividend payout is £0

Accounting Apr 19, 2021

Text plc's current dividend payout is £0.60 per share. Text plc expects to be able to increase its dividend payout by 3% per annum. Its current cost of equity capital is 15%. In an efficient market, which agrees with Text plc's dividend payout predictions, what should Text plc's current share price be?
A. £0.6 B. £5 C. £5.15 D. None of the above

Expert Solution

Computation of Current Share Price:

Current Share Price = Next Year Dividend/(Cost of Equity Capital - Growth Rate)

= 0.60*(1+3%)/(15%-3%)

= 0.618/12%

Current Share Price = 5.15

So, the correct option is C "5.15"

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