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Question - External Byte is a recently listed company. The shareholders in this company have just received a dividend payment and they have been told that their next dividend payment will be $2.47. Investors expect this dividend to grow at constant rate of 3% pa thereafter. Assume that the required return for the investor is 16% pa.
a) Calculate the value of the company's share immediately after the dividend payment. Give your answer in dollars and cents to the nearest cent.
Immediately after the dividends were paid, External Byte suddenly lost a key competitor who was involved in a huge corporate scandal. Investors believe that the resultant increase in market share will make the dividends grow faster than they initially predicted. They predict that the dividend growth will be increased to a constant rate of 6%.
b) Assuming the required return is the same as previously, calculate the increase in the value of the share caused by losing their key competitor. Give your answer in dollars and cents to the nearest cent.
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