ABL Ltd. paid a dividend of $250,000 this year. The current return to shareholders of companies in the same industry as ABL Ltd. is 12%, although it is expected that an additional risk premium of 2% will be applicable to ABL Ltd., being a smaller and unquoted company. Compute the expected valuation of ABL Ltd., if: (a) The current level of dividend is expected to continue into the foreseeable future, or (b) The dividend is expected to grow at a rate of 4% pa into the foreseeable future (c) The dividend is expected to grow at a 3% rate for three years and 2% afterwards.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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ABL Ltd. paid a dividend of $250,000 this year. The current return to shareholders of companies in the same industry as ABL Ltd. is 12%, although it is expected that an additional risk premium of 2% will be applicable to ABL Ltd., being a smaller and unquoted company. Compute the expected valuation of ABL Ltd., if:

(a) The current level of dividend is expected to continue into the foreseeable future, or

(b) The dividend is expected to grow at a rate of 4% pa into the foreseeable future

(c) The dividend is expected to grow at a 3% rate for three years and 2% afterwards.

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