Problem
You won an amount of $750 000 in a lottery and are considering investing it in shares of Chiral Limited. This company will pay a dividend $1.46 one year from now which is expected to grow at an annual rate of 13% until the third year. Thereafter the dividend will grow at 7% per annum forever.
1. Calculate the value of the Chiral Limited share using the Dividend Discount Valuation Model if the required rate of return is 11%.
2. Explain whether it would be worthwhile to buy the shares if they are trading on the Australian Securities Exchange at $56 per share.