Problem
Icarus Plc has made the following dividend payments to its shareholders:
|
Date
|
Dividend per share
|
|
5 years ago
|
£4.30
|
|
4 years ago
|
£4.45
|
|
3 years ago
|
£4.60
|
|
2 years ago
|
£4.75
|
|
Last year
|
£4.85
|
|
This year
|
£4.90
|
The cost of equity (RE) for Icarus Plc is 8.4%.
1. Based on the table given above, calculate the historical growth rate in dividends. The figures should be rounded to two decimal places.
2. Assuming that the perpetual growth rate in dividends will be equal to the historical growth rate, calculate the fundamental value of Icarus Plc using the Gordon growth formula. The figures should be rounded to two decimal places.
3. Perform sensitivity analysis by varying the growth rate calculated in point (a) up and down by one percentage point. The figures should be rounded to two decimal places.
4. Explain whether dividend pricing models can be used for companies that are currently not paying dividends.