Workshop
—
Valuing
Shares
This
workshop
is
designed
to
take
you
through
some
examples
of
more
difficult
questions
you
could
encounter
relating
to
this
week's
share
topic.
1.
Simple
question
on
share
price
with
constant
growth
Banana
Inc.
has
never
paid
a
dividend.
Its
first
dividend
of
$10
per
share
is
planned
for
one
vear
from
today.
After
that,
dividends
will
be
paid
annually,
growing
at
a
rate
of
10%
p.a..
With
a
required
rate
of
return
on
equity
of
12%
p.a.,
what
is
Banana
Inc's
share
price?
3
—_
(e
2.
Adding
in
difficulty:
delay
in
first
dividend
5
Banana
Inc.
has
never
paid
a
dividend.
Its
first
dividend
of
$10
per
share
is
planned
for
three
years
from
today.
After
that,
dividends
will
be
paid
annually,
growing
at
a
rate
of
10%
p.a..
With
a
required
rate
of
return
on
equity
of
12%
p.a.,
what
is
Banana
Ine's
share
price?
3.
Harder
still:
delay
in
first
dividends,
followed
by
a
period
of
uneven
dividends
before
moving
to
a
constant
growth
rate
Banana
Inc.
has
never
paid
a
dividend.
Its
first
dividend
of
$10
per
share
is
planned
for
two
years
from
today.
The
next
dividend,
also of
$10,
is
planned
for
four
years
from
today.
After
that,
dividends
will
be
paid
annually,
growing
at
a
rate
of
10%
p.a..
With
a
required
rate
of
return
on
equity
of
12%
p.a.,
what
is
Banana
Inc's
share
price?
4.
Another
difficult
example
You
have
been
asked
to
value
a
share
for
SkipFit,
a
company
that
manufactures
skipping
ropes
and
other
fitness
equipment.
You
have
been
informed
that
SkipFit
will
pay
a
dividend
of
$0.30
for the
next
2
years.
Subsequently,
the
company
will
not
pay
dividends
for
two
years
(as
they
expect
to
retain
earnings
to
invest
in
profitable
projects).
After
this
period
of
no
dividends,
SkipFit
expects
to
pay
a
dividend
of
$0.55,
with
subsequent
dividends
growing
at
7%
p.a..
If
the
required
rate
of
return
on
equity
is
10%
p.a.,
and
assuming
dividends'éare
paid
at
the
end
of
the
year,
what
is
the
value
of
one
SkipFit
share
today?
)
5.
Solving
for
"g"
D
o
hat
P
[
'
i
Silo
Builderf'
just
paid
a
dividen%of
$0.72.
Their
ordinary
shares
are
currently
trading

at
$18.72
in
the
market.
Silo
er's
shareholders
require
a
rate
of
return
of
8%
p.a.
What
is
the
implied
growth
rate
of
Silo
Builder's
dividends?
9.9
p)
(
+
OJ
P
—————————
e
——
6.
Solving
for
"r.»
l
§
7L_f
00f
_9
C
WaggaWagga
Ltd's
shares
are
currently
selling
for
$3.50.
The
next
expected
dividendj

is
$0.138
and
the
company
has
just
paid
a
dividend
of
$0.108.
Assuming
dividends
grow
at
@
constant
rate,
what
15
the
required
tafe
of
refurn
implied
by
the
current
share
price?