Hayden Ltd intends to make its first dividend payment 5 years(s) from now. It th

Question

Hayden Ltd intends to make its first dividend payment 5 years(s) from now. It then intends to pay dividends annually thereafter. The company has announced it expects the first three dividends to all be of the magnitude of around 5 cents per share. Subsequent dividends will then be paid out at a set rate of 50% of earnings. Your earnings forecasts for this coming year suggest that $0.20 Earnings per Share (EPS) is the most likely outcome. You are then forecasting EPS growth of around 3.2% p.a. in perpetuity. What would be your valuation of Hayden Ltd's shares, given you require a 15% p.a. return?

State your answer in dollars to three decimal places.

Explanation / Answer

Price=$0.469

Growth Rate=3.2% Year 8 0.20*((1+0.032)^7= 0.249337658 0.249338 Payout=50% Dividend Year 8=0.249338*50%=0.124669 Dividend Year 9= 0.124669*((1+0.04)^1)=0.129656 Price Year 8= Dividend Year 8/(Ke-g) Price year 8=0.129656/(0.15-0.032)=1.09878

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