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Question 960  DDM, stock pricing

You are an equities analyst trying to value the equity of the Australian supermarket conglomerate Woolworths, with ticker WOW. In Australia, listed companies like Woolworths tend to pay dividends every 6 months. The payment around September is the final dividend and the payment around March is called the interim dividend. Both occur annually.

  • Today is mid-November 2018.
  • WOW's last final dividend of $0.50 was two months ago in mid-September 2018.
  • WOW's last interim dividend of $0.43 was eight months ago in mid-March 2018.
  • Judging by the dividend history and WOW's prospects, you judge that the growth rate in the dividends will be 3% pa forever.
  • Assume that WOW's total cost of equity is 6.5% pa. All rates are quoted as nominal effective rates.
  • The dividends are nominal cash flows and the inflation rate is 2.5% pa.

What should be the current share price of WOW?