Calculate what you consider should be the market value of sh

Reference no: EM13807855

Today is 30^th June 2015. Justin Beamer Limited has distributable earnings of $6.00 per share. The company considers that it has a choice between:

i) Distribute these earnings as dividends, in which case it will be able to maintain this annual dividend payment ($6.00 per share) in perpetuity (forever)

(ii) or, alternatively, reducing the dividend payment now and over each of the next three years (30^th June 2016, 2017, 2018) to $2.00 per share with re-investment into the firm of any additional distributable earnings. In which case, it considers that the firm will then be in a position to increase the dividend payout to $3.50 on 30^th June 2019, with annual increases of dividend thereafter of 2% per annum.

Investors' required return on their shares in JB Limited is 12% per annum.

Required:

Calculate what you consider should be the market value of shares in JB Limited on 1^st July (after it has paid the annual dividend for 2015) under each of the above scenarios (i) and (ii).

Reference no: EM13807855

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