Roxette, Inc., will pay fixed dividends at the end of each of the next two years. The dividend will then grow at a constant rate of 6 percent per year thereafter forever. The current share price is $70. What is next year’s dividend payment if the required rate of return is 10 percent?Part B [5 marks]Green Tech Ltd. currently trades at $75 per share. The required return on its share is 10 percent. The total return on its share is equally divided between a capital gains yield and a dividend yield. Green Tech’s policy is to always maintain a constant growth rate in dividends. What is its current dividend per share?

The language of the text is English.

To answer the questions:

Part A:

We can use the Gordon Growth Model (also known as the Dividend Discount Model) to calculate the dividend payment for Roxette, Inc. The model is as follows:

P = D / (r - g)

Where: P = Current price of the share D = Dividend payment of next year r = Required rate of return g = Growth rate of dividends

We can rearrange the formula to solve for D:

D = P * (r - g)

Substituting the given values:

D = $70 * (0.10 - 0.06) =$70 * 0.04 = $2.8

So, the dividend payment for next year is $2.8.

Part B:

For Green Tech Ltd., we know that the total return is equally divided between a capital gains yield and a dividend yield. This means that the dividend yield is half of the required return, or 0.10 / 2 = 0.05 (5%).

We also know that the price of a share (P) is equal to the dividend of next year (D1) divided by the required rate of return minus the growth rate (r - g). However, because the growth rate is equal to the dividend yield, we can simplify this to:

P = D1 / r

Rearranging to solve for D1 gives us:

D1 = P * r

Substituting the given values:

D1 = $75 * 0.05 =$3.75

So, the current dividend per share for Green Tech Ltd. is $3.75.