Using the dividend growth model, what would be the expected change in share price?

Company A plans to acquire a minority stake in Company B.

The last available share price for Company B was $0.60.

Relevant data about Company B is as follows:

• A dividend per share of $0.08 has just been paid

• Dividend growth is expected to be 2%

• Earnings growth is expected to be 4%

• The cost of equity is 15%

• The weighted average cost of capital is 13%

Using the dividend growth model, what would be the expected change in share price?
A . $0.03 increase
B . $0.07 fall
C . $0.16 increase
D . $0.14 increase

View Answer

Answer: A