An Investor Expects Tom Fun Ltd to Pay a Dividend $\$ 6.98$

question 14

Multiple Choice

An investor expects Tom Fun Ltd to pay a dividend of $0.40 in year 1,$0.75 in year 2 and $.80 in year 3,after which the investor expects to sell the share for $8.95.The cost of equity capital is estimated to be 13.50% p.a.What is the present value of one share in Tom Fun Ltd?

• A) \( \$ 6.98 \)
• B) \( \$ 7.46 \)
• C) \( \$ 7.60 \)
• D) \( \$ 8.54 \)

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Definitions:

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