An investor is considering investing into the shares of a start-up company. The investor's approach to share valuation is to discount future expected dividends at a rate of 5.0% per annum. The company is an online food delivery service that is expected to start paying annual dividends of 6p per share in 3 years' time. Dividends are expected to remain constant for 5 years and then start increasing at a rate of 3.5% per year. Explain what happens to the share valuation if the discounting rate is changed from 5% to 3% per annum.
An investor is considering investing into the shares of a start-up company. The investor's approach to share valuation is to discount future expected dividends at a rate of 5.0% per annum. The company is an online food delivery service that is expected to start paying annual dividends of 6p per share in 3 years' time. Dividends are expected to remain constant for 5 years and then start increasing at a rate of 3.5% per year. Explain what happens to the share valuation if the discounting rate is changed from 5% to 3% per annum.
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
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Transcribed Image Text:An investor is considering investing into the shares of a start-up company. The
investor's approach to share valuation is to discount future expected dividends at a rate
of 5.0% per annum.
The company is an online food delivery service that is expected to start paying annual
dividends of 6p per share in 3 years' time. Dividends are expected to remain constant
for 5 years and then start increasing at a rate of 3.5% per year.
Explain what happens to the share valuation if the discounting rate is changed
from 5% to 3% per annum.
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