Question

Weston Corporation just paid a dividend of $3.75 a share (i.e., D0 = $3.75). The dividend is expected to grow 9% a year for the next 3 years and then at 4% a year thereafter. What is the expected dividend per share for each of the next 5 years? Do not round intermediate calculations. Round your answers to the nearest cent.

Answer 1

Answer:

D1 = $4.085

D2 = $4.46

D3 = $4.86

D4 = $5.01

D5 = $5.16

Explanation:

As per the data given in the question,

DO = $3.75

Dividend expected to grow = 9%

Dividend grow later = 4%

D1 = DO(1+ Dividend1) = $3.75(1+9%)  

=$3.75(1.09)

=$4.085

D2 = DO(1+ Dividend1 )( 1 + Dividend2)

= $3.75(1+9%)(1+9%)

= $4.46

D3 = DO(1+Dividend1)(1+Dividend2)(1+Dividend3)

= $3.75(1+9%)(1+9%)(1+9%)

= $4.86

D4 = DO(1+Dividend1)(1+Dividend2)(1+Dividend3)(1+Dividend later)

= $3.75(1+9%)(1+9%)(1+9%)(1+3%)

= $5.01

D5 = DO(1+Dividend1)(1+Dividend2)(1+Dividend3)(1+Dividend later)(1+Dividend later)

= $3.75(1+9%)(1+9%)(1+9%)(1+3%)(1+3%)

= $5.16