a) Assume LLB Limited has just paid an unfranked dividend of $0.20 per share. LL
ID: 2626620 • Letter: A
Question
a) Assume LLB Limited has just paid an unfranked dividend of $0.20 per share. LLB expects to continue to pay unfranked dividends for the next 3 years after which fully franked dividends will be paid. LLB expects dividends to grow at 5% p.a. and the company has a cost of equity capital of 10% p.a.
Required : (a) Assuming a company tax rate of 30%, calculate the value of 1 share in LLB? Show all working. State any assumptions made.
(b) Estimation of valuation models (such as the model used in part (a) above) rely on the accuracy of their inputs. What are the issues associated with obtaining inputs for valuation models in practice? Use dot point if necessary. State any assumptions made.
Explanation / Answer
b) What matters most in valuation is making a reasonable estimate of future market multiples
The mean of the historical valuation may not be the mean for the future, especially when we do not have enough historical data.
Erroneous or misinterpreted data collected
Conflicting data
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