Question

19. Suppose Wamba Itd paid a dividend last year amounting to sh 100,000. The dividend stream is expected to grow by 10% indefinitely. If the discount rate is 20% what is the PV of the dividends?​

Answer 1

The PV of the dividends is  107,843.1374.

Present value is the idea that states a sum of money these days is worth extra than that same quantity in the future. In other phrases, cash obtained in the future is not well worth as a great deal as an equal quantity obtained today.

The dividend cut price model DDM is a quantitative technique used for predicting the price of an enterprise's inventory primarily based on the idea that its gift-day fee is really worth the sum of all of its future dividend bills when discounted and returned to its present fee.

A dividend last year amounting to sh 100,000.

The dividend stream is expected to grow by 10%

The discount rate is 20%

The PV of the dividends is

​  Future Value = 10% 0f 100,000

                         = 10,000

Total future value = 100,000 + 10000

                            110000 =

       rate = 20%

Present Value= Future Value /  (1+interest rate%)

                      = 110000 / (1 + 0.2)

                      = 110000/1.02

                     = 107,843.1374

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