Sfm queries thread

the ans of x is 42% but the thing is there isnt require any information of co A except its IV.

Originally posted by : Ashish Jain Raparia
	the ans of x is 42% but the thing is there isnt require any information of co A except its IV.

hi thanks,can you please tell the full solution?

The IV of B is 26.52 (34.12-7.6). The IV is the PV of the all future Cash Flows (here dividend). So discount the 3 dividends (5.11) and deduct that cumulative amount from IV. The remaining IV is the PV of the infinite future dividends. The dividend at y3 is 2.27 which will grow at x rate. Therefore:

21.41 = 2.27(1+x%)/.11/(1.11)^3

x=42%

hope u get it.

Originally posted by : Ashish Jain Raparia
	The IV of B is 26.52 (34.12-7.6). The IV is the PV of the all future Cash Flows (here dividend). So discount the 3 dividends (5.11) and deduct that cumulative amount from IV. The remaining IV is the PV of the infinite future dividends. The dividend at y3 is 2.27 which will grow at x rate. Therefore: 21.41 = 2.27(1+x%)/.11/(1.11)^3 x=42% hope u get it.

Hi in the book the answer given is 3%

my wrong.

21.41 = 2.27(1+x)/.11-x/1.11^3

x = 3 %.

earlier i applied the formula of no growth which was wrong. Here the formula of perpetual growth will be applied.