Using the dividend growth model, advise the Board of Directors of Company M which of the following provide a reasonable valuation of Company M’s equity?

Company M’s current profit before interest and taxation is $5.0 million.

It has a long-term 10% corporate bond in issue with a nominal value of $10 million.

The rate of corporate tax is 25%.

It plans to continue to pay out 50% of its earnings in dividends and earnings are expected to grow by 3% each year in perpetuity.

Its cost of equity is 10%.

Using the dividend growth model, advise the Board of Directors of Company M which of the following provide a reasonable valuation of Company M’s equity?
A . $73.6 million
B . $22.1 million
C . $44.1 million
D . $50.1 million

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Answer: B