Section A

Gamma PLC has just paid a dividend of $0.40 per share. Dividends are expected to grow at 8% for the next year, and then at a constant rate of 4% per annum in perpetuity. The cost of equity is 10%.

What is the theoretical ex-dividend market value of one share in Gamma PLC?

1. Calculate D1: The dividend just paid (D0) is $0.40. It grows at 8% for year 1. D1 = $0.40 * 1.08 = $0.432. 2. From Year 1 onwards, the growth rate is a constant 4%. 3. Because the constant growth starts from D1, we can use the standard Dividend Valuation Model: P0 = D1 / (Ke - g). 4. P0 = $0.432 / (0.10 - 0.04) = $0.432 / 0.06 = $7.20. *(Note: $7.19 is accepted due to minor rounding differences in intermediate steps, but $7.20 is exact).* Let's assume the option B is $7.20.