Determine the value of one ordinary share of Carter & Briggs using:Dividend valuation method. To assist you with the task, the following information is provided:During Year 0, dividends proposed and paid were £120mNumber of ordinary shares remains stable = 500mDividends annual growth rate to perpetuity = 4%Carter & Briggs’s WACC is 10%, while its cost of ordinary share capital is 12%Sales revenue for Year 0 = £1,200mCarter & Briggs will experience abnormal growth of sales revenue for the next five years = 16% p.a., which is followed by stable perpetual growth at 12% p.a.Operating profit margin will remain constant at 18% of sales revenueCorporation tax is stable = 30%Annual additional working capital investment over the next six years will be 7% of annual sales growthAnnual additional non-current asset investment over the next six years will be 10% of annual sales growthLong-term debt is currently = £843mSustainable growth rate from Year 6 is 2%

Given: Year 0 dividend = £120m Dividend growth rate = 4% Cost of capital = 12%

Answered: Determine the value of one ordinary…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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Determine the value of one ordinary share of Carter & Briggs using:

Dividend valuation method.

To assist you with the task, the following information is provided:

During Year 0, dividends proposed and paid were £120m
Number of ordinary shares remains stable = 500m
Dividends annual growth rate to perpetuity = 4%
Carter & Briggs’s WACC is 10%, while its cost of ordinary share capital is 12%
Sales revenue for Year 0 = £1,200m
Carter & Briggs will experience abnormal growth of sales revenue for the next five years = 16% p.a., which is followed by stable perpetual growth at 12% p.a.
Operating profit margin will remain constant at 18% of sales revenue
Corporation tax is stable = 30%
Annual additional working capital investment over the next six years will be 7% of annual sales growth
Annual additional non-current asset investment over the next six years will be 10% of annual sales growth
Long-term debt is currently = £843m
Sustainable growth rate from Year 6 is 2%

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