Section B - Case 2: AeroDynamics PLC
Scenario: AeroDynamics PLC, an aerospace manufacturer, is evaluating the acquisition of a target company, HeliParts. HeliParts has just paid an annual dividend of $0.40 per share. Historical dividend data shows that 4 years ago, the dividend was $0.32 per share. HeliParts' cost of equity is estimated at 12%. The company has 5 million ordinary shares in issue. HeliParts also has $10 million of 8% irredeemable bonds trading at $105 per $100 nominal value. The corporate tax rate is 25%.
Calculate the historical annual dividend growth rate for HeliParts. (Express your answer as a percentage to two decimal places, e.g., 5.25).
ACCA · Question 22 · Business Valuations
Section B - Case 2: AeroDynamics PLC
Scenario: AeroDynamics PLC, an aerospace manufacturer, is evaluating the acquisition of a target company, HeliParts. HeliParts has just paid an annual dividend of $0.40 per share. Historical dividend data shows that 4 years ago, the dividend was $0.32 per share. HeliParts' cost of equity is estimated at 12%. The company has 5 million ordinary shares in issue. HeliParts also has $10 million of 8% irredeemable bonds trading at $105 per $100 nominal value. The corporate tax rate is 25%.
Assuming a constant future dividend growth rate of 5.74%, what is the value of one share in HeliParts using the Dividend Valuation Model (DVM)?
Answer options:
$3.33
$6.39
$6.76
$7.15
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