Changes in Expected Return (Example) Homework Help

EXAMPLE

For the facts in Example 4.7, assuming that the expected rate of growth would increase from 7 to 9 per cent due to proposal to upgrade technology, compute the value of the share.

Solution

1

Thus, value of shares has increased from Rs 33.3 10 Rs 42.9. The increase is caused by the higher expected future return-dividends as reflected in the increase in the growth rate.

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